In recent times, Bitcoin, the leading cryptocurrency, has garnered significant attention from both institutional investors and government bodies. The increasing interest in Bitcoin is evident as financial institutions and governmental entities seek to incorporate it into their portfolios. Prominent figures such as Federal Reserve Chairman Jamie Powell have expressed that Bitcoin is not in direct competition with the US dollar; instead, it rivals gold as an asset class. Bitcoin shares several attributes with gold, including its long-lasting nature, scarcity, and the complexities involved in its mining process.
BRICS Nations and the Move Towards De-Dollarization
Amid these developments, the BRICS nations (Brazil, Russia, India, China, and South Africa) are advancing their initiatives to establish alternative currencies, aiming to reduce dependency on the US dollar. This strategic move aligns with the broader trend of decentralized finance, where Bitcoin plays a pivotal role. However, China remains cautious regarding the legalization of cryptocurrency activities. The country has adopted a measured approach, focusing on regulated virtual tokens through the stablecoin bill enacted in Hong Kong.
China’s Strategic Shift to Gold Reserves
While China shows reluctance towards cryptocurrencies, it has demonstrated a strong inclination towards gold as a reserve asset. Notably, in 2023, the People’s Bank of China (PBOC) emerged as the world’s largest official purchaser of gold. After halting its gold acquisitions in May, the PBOC resumed its buying spree in November, coinciding with a surge in gold prices to record highs. By the end of November, China’s gold holdings had increased to 72.96 million fine troy ounces, marking a significant rise from the previous month.
The Resurgence of Gold Demand Amid Global Tensions
According to Ole Hansen, head of commodity strategy at Saxo Bank, the resumption of gold purchases by the PBOC indicates the bank’s readiness to accumulate reserves despite prevailing high price levels. This move comes as gold prices soared to unprecedented levels in October, driven by heightened demand for safe-haven assets amidst geopolitical tensions in the Middle East and Ukraine, as well as uncertainties surrounding the recent US presidential elections. Although some of these gains were reversed following a de-escalation of tensions and the conclusion of the elections, gold remains a crucial asset in China’s economic strategy.
Impact on Consumer Demand and Economic Outlook
Despite the robust acquisition of gold by the PBOC, consumer demand for gold in China has witnessed a decline as prices surged by nearly 30% this year. While gold bars and coins have sustained their value throughout the first three quarters, retail sales of discretionary items such as jewelry have experienced a downturn. This trend reflects a broader shift among investors who are prioritizing the protection of their wealth in the face of economic uncertainties.
