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China central bank buying set stage for gold’s rally

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Last week’s gold rush may have been triggered by bets on the

US Federal Reserve

‘s long-anticipated pivot to looser monetary policy, but the foundations for the record rally were laid in China.
Prices breached Dec’s record on Tuesday and have jumped to successive daily highs ever since. The rally itself was peculiar: gold tends to spike in response to globe-shaking geopolitical or economic developments, and nothing particularly noteworthy had happened to justify the surge.
The prices didn’t actually have that far to go before hitting record territory.

Gold has been trading for months around the $2,000 mark – a level that would have been viewed as stratospheric just a few years ago, and which was only breached for the first time in 2020. Even more unusually, prices have traded at such elevated levels despite high real interest rates that are bad for gold.
Why were prices so high in the first place? That’s where China comes in.
While many western investors did indeed dump gold holdings as rates soared last year, global demand was underpinned instead by massive purchases by central banks in emerging market countries, led by China.

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