(Mike Maharrey, Money Metals News Service) Gold demand in China continued to show signs of growth last month despite the relentless climb in prices.
China ranks as the world’s largest gold market.
As Jesse Colombo reported, aggressive Chinese futures traders on the Shanghai Futures Exchange (SHFE) helped drive last year’s gold bull run, even as Western investors remained largely on the sidelines. Now it appears they are stepping up to the plate again.
“Fresh off the week-long Chinese Lunar New Year holiday, these traders are reentering the market—just as gold was already heating up without them.”
Part of the reason gold was heating up in January was improved physical demand in China, even as prices continued to push to record highs.
The price of gold climbed by about 5 percent in January in yuan terms. This compares to an 8 percent increase in dollar terms. A strengthening yuan along with fewer trading days due to the Chinese New Year accounts for gold’s relative underperformance in yuan terms.
Even with surging prices, wholesale gold demand rose by about 3 percent month-on-month in January. The Shanghai Gold Exchange shipped out 125 tons of gold. According to the World Gold Council, seasonal stock replenishment from jewelry retailers, banks, and other market participants ahead of the Chinese New Year drove the increase in wholesale demand.
Even with the improvement, wholesale demand remains below levels seen in past years as the higher price continues to put a drag on jewelry demand.
World Gold Council surveys in the hub of China’s gold wholesaling and manufacturing region found a “weaker-than-usual sentiment” among gold jewelry retailers.
“With the gold price soaring and the past year’s demand picture reminding them of potential sustained weaknesses, gold jewelry retailers lowered their expectations for the holiday sales and stocked up less than previous years.”
On the other hand, surging prices, along with gold purchase announcements by the Chinese central bank and yuan volatility, have driven investor interest in gold. World Gold Council analyst Ray Jia pointed out that online searches for gold topped their previous peak seen in 2013 when gold demand in China surged to the highest in history.
“Our conversations with market participants indicate that gold bar sales maintained their stunning pace seen in 2024, even leading to inventory shortages for some.”
Jia said he anticipates “continued strength in bar and coin demand while the soaring gold price may weigh on gold jewelry sales in tonnage terms – although consumer spending may not change much.”
A new policy allowing Chinese insurance companies to invest in gold for the first time could also give demand a significant boost in the coming months.
Chinese gold ETFs reported outflows of 4.7 tons of gold in January. Jia said this was likely due to profit-taking ahead of the Chinese New Year holiday to avoid additional volatility from international markets while the local market was closed, and investor sentiment toward gold remains largely positive.
Chinese gold import data lags by a month. Based on the most recent Chinese customs data, the country imported 84 tons of gold in December. That pushed the yearly total to 1,225 tons, a 14 percent year-on-year decline. However, Q4 imports were up 160 percent quarter-on-quarter.
Jia said he thinks the recent positive trend in the gold market will continue.
“In tonnage terms, demand for gold jewelry may stay tepid – although value-preserving motives will provide some support – but bar and coin sales should remain hot – and any gold price adjustment could be viewed as a good opportunity to enter.”
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
