(Kitco News) - China’s gold market set all-time highs in several areas last month, as a number of key factors combined to ratchet up demand for the precious metal, according to the latest report from the World Gold Council (WGC) published Wednesday.
The WGC said the weaker renminbi helped prop up local gold prices in China even as the dollar-denominated international market saw a price pullback.
“Unlike its USD peer, the local gold price in RMB remained stable in January,” said Ray Jia, Senior Analyst, China at the World Gold Council in the report. “During the month, the LBMA Gold Price AM in USD saw a 1.2% fall, while the SHAUPM rose slightly by 0.1%, primarily due to the 1% depreciation in RMB against the dollar.”
Jia pointed out that while China’s gold price performance lagged global equities last month, it still handily outperformed Chinese equities and other commodities. “This should remind local investors of the benefit of diversifying their portfolios with gold, which has low correlations with Chinese assets,” he said.
He also noted that January 2024 saw the highest bullion withdrawals ever recorded.
“Gold withdrawals from the SGE totalled 271t last month, a 95% jump when compared to the low base in 2023 amid fewer working days, and a 65% m/m surge,” Jia said. “[A]ctive restocking ahead of the traditional sales boom around the CNY holiday drove January’s wholesale gold demand materially higher. And January is usually the strongest month for gold withdrawals as the CNY holiday generally occurs in late January or early February.”
“We believe a stable local gold price provided additional support,” he added.
Jia pointed to two key factors that drove the record replenishment, which he said reflected the “positive outlook on gold demand around the CNY holiday.”
The first was especially positive consumer sentiment towards gold jewelry consumption this year. “Golds products themed ‘Year of the Dragon’ are often considered auspicious and have been supporting gold jewellery sales so far in 2024,” he said.
The second factor is the continuation of the trend that persisted throughout the Year of the Rabbit last year: Strong investment demand for gold.
“As local assets including equities and properties saw weak performances, the strong RMB gold price performances in recent months attracted investors who sought safe-haven assets,” Jia said. “And this led to continued popularity of gold bars and coins, resulting in manufacturer and commercial banks’ vibrant replenishment for the CNY holiday.”
Jia also addressed the impact of this burgeoning demand on the local gold price premium, which has come off the all-time highs set in late 2023 but ticked up throughout the month.
“The Chinese gold price premium averaged US$47/oz (2.2%) in January, US$9/oz higher m/m,” he wrote. “With local gold demand rocketing ahead of the CNY holiday and imports in recent months lowering, tightening supply and demand conditions lifted the local gold price premium higher.”
Another important measure of Chinese gold demand is the net flows for Chinese gold ETFs. Here again the WGC noted unprecedented investor interest, as assets under management (AUM) rose to a record high last month.
“Chinese gold ETFs attracted RMB827mn (US$113mn) in January, pushing their total AUM to RMB30bn (US$4bn), the highest ever,” Jia said. “And their holdings rose 1.6t to 63t by the end of the month.”
“Rising safe-haven demand drove investors to gold amid the seventh consecutive monthly decline in local equities and a weakening RMB,” he added.
China’s central bank also continued its record-setting run of purchases last month, with the People’s Bank of China (PBoC) adding to its gold reserves once again.
“China’s central bank announced a 10t gold purchase in January, pushing their total gold reserves to 2,245t,” Jia wrote. “The PBoC has been announcing non-stop gold reserve [increases] since November 2022. And during this 15-month period, the PBoC’s reported gold purchases piled up to 297t.”
“The central bank’s gold buying spree, combined with weak performances of Chinese assets such as equities and properties, has sparked retail investors’ interests in gold,” he said. “It also contributed to a surge in local gold investment demand during 2023 and could continue to support the sector’s growth.”
Jia also looked at the recently updated customs data on China’s gold imports for the full year of 2023, noting that even with the significant drop in December, imports still managed to eke out a modest rise year-over-year.
“Based on the latest information, China’s net gold imports amounted to 85t [in December], a 54t m/m fall [from November],” he said. “Continued declines in local gold price premiums during the month may have weighed on imports, among other factors.”
“In 2023, China imported 1,420t gold on a net basis, a 10% rebound y/y,” he wrote. “In general, variations in China’s gold imports in 2023 reflected changes in local gold demand, which saw a 15% y/y bounce. Meanwhile, the relaxation of COVID-related restrictions, which led to a sizable rebound in international flights, were another key contributor.”
