The Chinese have been big gold buyers this week.

The world’s largest gold-backed exchange-traded fund saw a spike in holdings of the metal this week, on the heels of a more than 4% weekly climb in prices for the precious metal.

The SPDR Gold Trust  GLD +1.32% shows an increase to 25.925 million ounces as of Thursday, up 0.9% from Wednesday and at its highest total level since Dec. 20.

In the last month, there have been no sales from the SPDR Gold ETF, and 15 metric tons (529,109 ounces) of purchases said Julian Phillips, South Africa-based founder of and contributor to GoldForecaster.com.
“This is tremendously significant because sales of physical gold from these U.S. gold ETFs and from the leading U.S. banks totaled 1,300 metric tons in 2013,” he said. “This formed a key source of supply for gold. All of it went east to Asia never to return again.”

“The reduction in supply from the U.S., as these sales have now halted, is the prime reason the gold price is now rising,” said Phillips, adding that it has nothing to do with U.S. economic factors.
On Friday afternoon, April gold  GCJ4 +1.51% traded at $1,316.30 an ounce on Comex, up $16.20, or 1.3%.  It was poised for a weekly gain of about 4.2%.

Shares of the SPDR Gold Trust climbed 1.1%, trading around 3.8% higher for the week.
Mitul Kotecha, head of global FX strategy at Credit Agricole, said in a note Friday that gold ETF demand appears to have “stabilized” over recent weeks. The poor performance of equities markets since the start of the year has made gold look “more attractive as an investment, while lower yields mean that the opportunity cost of holding gold has lessened.”

Over in China, “demand continues at a rising pace at a level between 2,400 and 2,800 metric tons including local supply, per annum,” said Phillips.
“After the Lunar New Year, demand has jumped again [and] as the Chinese middle classes rise in numbers and in wealth, they will continue to buy more and more,” he said. “As you know, such buying is generational for financial security, not for profits. So it won’t return to the market with high prices.”
So if the U.S. are buyers of gold, it will now have to “pay up for it to shake out weak holders,” he said.