What does China’s economic slowdown imply for the world’s economy and the gold market? Well, as China dominates global demand for many raw materials, its economic slowdown should take some pressure off commodity prices. On the other hand, the series of lockdowns could prolong the supply-chain issues and, thus, a period of elevated inflation. This could be positive for gold prices, but as long as the Fed remains hawkish and determined to beat inflation, gold will struggle.
We can’t rule out the possibility that the real estate crisis will lead to a wider financial crisis. However, given the peculiarities of Chinese state capitalism, I expect more of a Japan-style period of stagnation (or relatively low growth) rather than an American-style outright economic crisis. Gold could rally only if we see a contagion from China’s real estate to the US financial markets. Hence, gold bulls shouldn’t count on China’s economic problems – actually, the country’s slowdown could support the US dollar, putting gold prices under pressure. However, China’s economic slowdown would imply slower global growth, making the world more fragile and prone to recessions.
Last but not least, it could be that Xi Jinping decides to distract attention from economic problems and escalate conflict over Taiwan. In this scenario, gold could get support, although geopolitical tensions usually provide only a short-term boost.