(Kitco News) - The World Gold Council (WGC) has released its latest note about the current state of the gold market in China this week. China is currently in the midst of another COVID-19 outbreak and there are lockdowns in some of the major cities including Shanghai and Beijing. This has had an impact on the sales of both physical bullion and jewelry. The report from the WGC addresses both areas and gives us an update on investing activity.
On investment demand, the report said "outflows from Chinese gold ETFs continued last month. Total assets under management (AUM) in Chinese gold ETFs reduced by 1.8t ($143mn, RMB0.8bn), to 56.7t ($3.4bn, RMB22.7bn) in May. As COVID restrictions in Shanghai eased and various stimuli were rolled out, local investor risk appetite improved.
Wholesale physical gold demand improved m/m. Gold withdrawals from the SGE saw a 19t rebound m/m, totaling 103t in May. And on a y/y basis, they were 2t lower than May 2021.
In April, gold imports saw another decline China imported 27t of gold in April, 21t lower m/m, and 84t less than April 2021. Weakened gold demand amid strict lockdowns in key regions, including Shanghai, and a negative Shanghai-London gold price spread in April both weighed on gold imports in the month. Looking forward this does tighten supply in domestic markets.
Moving forward the report noted as China gradually recovers from the most recent COVID hit and as stimulus measures gather pace, we expect Chinese gold consumption to improve over the coming months. A weakening currency, rising inflationary pressures and lower bond yields may help raise investor interest in gold investment products. And we believe a stable gold price and pent-up wedding demand could also benefit gold jewellery consumption.
Meanwhile, policymakers rolled out various stimulus measures to stabilize China’s economic growth. And these measures may have shored up jewelry retailer and manufacturer confidence, contributing to higher gold withdrawals in the month.
This all means that the outlook could be positive as the nation moves out of lockdowns. There will be pent-up demand but also there could be seasonal factors in play that could mean the recovery might be stronger than first thought.
