What’s next for gold? Look to China for clues.

“Chinese investors are going all-in on gold.

The country’s central bank has pushed its gold reserves to a record level. Consumers in the country are loading up on gold jewelry, in part because they are nervous about the shaky economy. Stock traders are buying the shares of gold miners, and rushing into exchange-traded funds that track the price of the metal.

That has primed the pump for the commodity’s recent rally, and will offer support as the price of gold heads into uncharted territory.

“I don’t think Chinese demand will be enough to propel global gold prices higher. But what it does mean is that any correction should be cushioned by the strong levels of physical demand that we’re seeing there,” said Nikos Kavalis, a managing director of precious-metals consulting firm Metals Focus.

Gold hit an all-time high this week, trading above $2,200 a troy ounce after the Federal Reserve indicated that three interest rate cuts are on the cards for 2024. The price of gold often goes up when interest rates go down, in part because bond returns look less attractive in comparison.

But traders have a record of second-guessing the Fed when economic data comes in hotter than expected, and any doubts about the pace of cuts could weigh on the price of gold in the coming months. The Fed is facing a tricky balancing act that means rate expectations are likely to shift constantly: The economy is booming, but consumers and small businesses are feeling squeezed by higher borrowing costs.

BMI, a research firm, raised its target for the price of gold on Tuesday to between $1,950 and $2,250 a troy ounce, but warned that strong economic data from the U.S. was a major risk factor, since it could slow down rate cuts. The firm said the main drivers of gold this year would be U.S. rates, the performance of the dollar and geopolitics.

State Street Global Advisors, which manages the world’s largest spot-gold ETF, was more bullish: The firm said it expects gold prices to reach between $2,200 and $2,400 once the Fed starts to lower rates later this year.

The People’s Bank of China bought more gold than any global central bank last year, purchasing a net 225 metric tons, according to the World Gold Council, an industry body. That was China’s biggest expansion of gold reserves since 1977. The country’s pension funds, insurers and other state-linked investors are also stocking up on gold, although their purchases are often undeclared, according to market participants.”