Gold Frenzy in Asia: Is There a Hidden Motive Behind the Rush?

According to industry sources, demand for gold is surging in Asia as investors purchase the metal as a hedge against political and economic volatility, even if prices are nearing their record highs from May.

Spot gold is currently up about 12% year to date at just over $2,300 per ounce, and it is only 6% off the record high it hit last month.

Experts assert that a decrease in confidence in other investment alternatives such as equities and real estate is a factor driving up demand for gold.

Bruce Ikemizu, chief director of the Japan Bullion Market Association, claims that despite record high prices, there are more bulls than bears in the gold market in Japan.

According to analysts, Chinese investors who are struggling with trade tensions, a lengthy real estate crisis, and currency depreciation are also finding value in gold. In the first quarter of this year, China saw a 27% increase in its purchases of gold coins and bars.

Rising Gold Prices Attract Retail Investors in Asia, but Indian Demand Declines

The safe-haven asset has been flooded with cash by retail investors into other Asian markets, and younger consumers are starting to show more interest in gold.

According to Nuttapong Hirunyasiri, CEO of MTS Gold Group, when news of increasing pricing appeared in Thailand, there were lineups outside gold shops.

Despite the fact that Vietnam's prices are still persistently higher than those of other countries, investors are flooding the country. Australia and India are still price-sensitive, though.

India, the world's second-biggest bullion consumer, has been experiencing poor demand, as seen by the five weeks in a row that Indian gold prices have fallen relative to global prices. The Perth Mint's monthly sales of gold items fell by 30% in May. India is predicted to import less gold in 2024-nearly a fifth less-as retail customers opt to trade in their old jewelry for new pieces rather than make new purchases due to the unprecedentedly high pricing.

Government Policies to Blame?

Government policies significantly influence gold trade and investment in various Asian countries. In India, high import duties and the introduction of the Goods and Services Tax (GST) have impacted gold prices and accessibility. The Indian government has been pushing for market formalization to stabilize demand, although this can lead to short-term disruptions.

Meanwhile, China manages its gold market through strict import quotas and regulatory controls, with the People's Bank of China playing a central role. Recently, China has been encouraging domestic gold investment as a strategy to diversify away from U.S. dollar assets and enhance economic resilience.

In Japan, government policies supporting monetary easing and low-interest rates make gold an attractive safe-haven investment. The Bank of Japan's aggressive monetary policies have created a favorable environment for gold trading. In Southeast Asia, countries like Thailand and Vietnam have diverse approaches.

Thailand supports a robust domestic gold market, while Vietnam deals with high premiums and regulatory efforts to stabilize prices. Indonesia focuses on formalizing the market and reducing illegal mining. Australia's policies are geared towards supporting mining and ensuring compliance with international trade standards, maintaining its status as a leading gold exporter.

Looking ahead, potential policy shifts could further impact gold trade and investment in Asia. Adjustments in import duties, regulatory changes, and new policies addressing market stability and investor protection could shape the future landscape of gold investment. Understanding these government policies is crucial for investors navigating the dynamic gold markets across the region.

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