Why China loves gold and is buying plenty of it

Wed 08 May 24, 11:46am (AEST)
China loves gold and why they’re buying plenty of it MI
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Key Points

  • China is one of the world's largest consumers of gold, and interest in owning gold continues to grow in the country
  • Major brokers Morgan Stanley and Citi reveal their gold price targets (hint one has a ‘3’ in front)
  • We also investigate the top ASX gold picks in the wake of recent third quarter activity reports

Up until a couple of weeks ago, the gold price was on a mighty tear in 2024, extending a rally that started in early October. There are several plausible theories for gold’s >30% gain since then, including central bank buying due to de-dollarisation, slower than expected disinflation, and rising tensions in the Middle East.

Gold-US Dollar Spot Rate last 5 years MI
The gold price is up around 30% since early October last year

Whatever the reason, along with copper, gold has been one of the hottest investment themes tantalising Aussie investors this year. At its peak on 19 April, the S&P/ASX All Ordinaries Gold (XGD) sub-index had gained 32% in just 7 weeks – such is its sensitivity to the gold price. 

But this sensitivity cuts both ways, with the prices of many ASX gold stocks turning sharply south after gold’s recent pullback (March quarterly reports may also have had something to do with this). This leaves many Aussie investors who jumped on the run scratching their heads and wondering where to from here?


Last Price

Oct23 Gold Low Chg%

Apr24 Gold High Chg%

Silver Lake Resources (SLR)




Newmont Corporation (NEM)




Tietto Minerals (TIE)




Westgold Resources (WGX)




Red 5 (RED)




West African Resources (WAF)




Ramelius Resources (RMS)




Perseus Mining (PRU)




Emerald Resources (EMR)




Northern Star Resources (NST)




Regis Resources (RRL)




Evolution Mining (EVN)




De Grey Mining (DEG)




Genesis Minerals (GMD)




Capricorn Metals (CMM)




Resolute Mining (RSG)




Gold Road Resources (GOR)




Bellevue Gold (BGL)




St Barbara (SBM)




Best and worst ASX gold sector stocks since the peak in the gold price on 12 April (note gold price pullback is 4.9%)

Let’s try and answer that exact question! In this article I’ll explore some of the key fundamental drivers for the gold price. I’ll also check up on the latest broker research to highlight for you some of their top-rated ASX gold stocks. (Note, I also regularly publish technical analysis updates on the gold price in the Evening Wrap)

Quite simply: Demand > Supply

Major broker Morgan Stanley cites three major reasons for gold’s immense strength in recent times:

  1. Central Bank purchases: These have “often dictated the direction of gold prices regardless of macro signals”.

  2. Safe Haven / Geopolitical Risk demand: Often spiked by wars (e.g. as occurred during the Iraq war in 2002, Iran nuclear tensions in 2006, and the Russia-Ukraine conflict in 2022).

  3. See below!

“We think safe haven / inflation protection demand are playing a role”, says Morgan Stanley, who further notes, “rising Middle East tensions, the return of inflation concerns and a heavy election year are likely all contributing”.

China is the elephant in the room when it comes to gold

The third reason Morgan Stanley tips why gold is doing so well lately is to do with China. Rival broker Citi, agrees on this point, noting China is the world's largest consumer of gold, hoovering up around 60% of global mine production, and around two-thirds of all annual global gold supply.

Citi says speculative interest in gold bullion is growing in China and this is combining with a strong physical demand outlook. Citi believes these factors are “buttressing” the gold market, and therefore are “supportive of a higher gold price floor”.

Morgan Stanley also notes strong physical demand from China, citing data from the China Gold Association that demand grew 6% p.a. in the first quarter of 2024. Much of the growth is due to buying by the People’s Bank of China (PBoC), which has increased its official gold reserves for 17 consecutive months.

17 consecutive months of Central Bank gold. Source Morgan Stanley, Bloomberg MI
17 consecutive months of Central Bank gold. Source Morgan Stanley, Bloomberg

Morgan Stanley points out that China now has the seventh largest official gold reserves of any country, but at just 4.6% of total monetary reserves, it still has a long way to go to match other Western counties. To put this point into perspective, consider the average global central bank holds around 15% of reserves as gold, but this figure is as high as 70% in the USA.

Citi also cites PBoC buying as one of the key reasons why the gold price should remain supported in the longer term. But also notes China’s current voracious appetite for gold is also due to:

  • Pent-up retail demand post-COVID

  • Investors using gold as a financial hedge against

  • Chinese New Year depreciation and weakness in other asset markets (e.g., local equities, and the property sector)

Gold price outlook

While both brokers agree on the current strong demand environment for gold, they have quite different views on the outlook for the gold price. Citi notes it’s bullish on gold in the medium to long term, but in the short term, it suggests the gold price rally is potentially overextended.

“We believe the elevated 1Q’24 buying pace is probably not sustainable”, says the broker. “Additionally, a seasonal pullback in regional demand is likely to hamper demand into the middle of this year.”

Longer term, though, Citi are clear gold bulls. They tip the gold price could trade with a ‘3’ handle for the first time ever in the not-too-distant future, given their ‘base case’ is for gold to hit US$3,000/oz within the next 12-15 months.

Morgan Stanley is a little more circumspect. Their ‘base case’ scenario is roughly where gold is now, around US$2,350/oz. But the broker notes there are plenty of factors both in play and that could develop (e.g. rate cuts, geopolitical tensions, sticky higher inflation), that mean the risk-reward for gold is “more skewed towards the bull case”. This means gold could tip US$2,760/oz in the second half.

The brokers’ top ASX gold stock picks

Evolution Mining (ASX: EVN)

Broker: Citi

  • Rating: Buy | Price Target: $4.50

  • EVN is the broker’s preferred pick after assessing ASX gold sector’s March quarter results

Golden Goad (ASX: GOR)

Broker: Goldman Sachs

  • Rating: Buy | Price Target: $1.95

  • “GOR remains undervalued in our view, trading at ~0.9x NAV (peer average ~1.3x)”

  • “FCF yields of c. 5-10% in CY24-26E remain attractive vs. peers and support upside to the outlook for capital returns.”

  • “Yield as well as organic growth”

  • “History of value creation through exploration”

Northern Star (ASX: NST)

Broker: Macquarie

  • Rating: OUTPERFORM | Price Target $17.00

  • “NST retained FY24 sales guidance with commentary that suggests a solid end to the year is underway”

Resolute Mining (ASX: RSG)

Broker: Macquarie

  • Rating: OUTPERFORM | Price Target: $$0.60

  • “We (and management) remain confident in the planned performance lift over the year.”

  • “Importantly, RSG is now fully unhedged and can begin to enjoy benefits of buoyant spot gold prices.”


Written By

Carl Capolingua

Content Editor

Carl has over 30-years investing experience, helping investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.

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