(Kitco News) – China’s gold market was a mixed bag in September with prices increasing and gold ETF flows turning positive while imports and futures volumes declined, according to Ray Jia, Research Head, China at the World Gold Council (WGC).
Jia noted that lower Treasury yields, a weakening dollar from the Fed’s larger-than-expected rate cut, and rising geopolitical tensions in the Middle East lifted gold prices to another record high in September. “But due to a rapid appreciation in the RMB, driven by dollar weakness and an improved Chinese economic outlook, the SHAUPM in RMB saw limited gains relative to its USD peer,” he said.
“Having risen for three months in a row, the RMB gold price ended Q3 with a sizable gain of 8%, pushing its y-t-d increase to 24%, leading other major assets,” Jia said. “Expectations of lower rates, spikes in geopolitical risks and continued central bank purchases have driven gold notably higher so far in 2024.”
Withdrawals from the Shanghai Gold Exchange also posted a 13% month-over-month increase in September, amounting to 115 tonnes.
“This is seasonal: retailers’ replenishment for the anticipated sales boost during the early October National Day Holiday and the upcoming peak season in Q4 drove up wholesale gold demand during September,” he pointed out. “But the y/y decline (-32%) reflects continued weakness in gold jewellery consumption amid a record-level gold price and decelerating economic growth.”
Jia wrote that bar and coin investment also cooled last month, due to uncertainty surrounding gold’s future price direction and strength in competing assets. “[N]otably, equities were boosted by the recent aggressive economic stimuli announcement,” he said.
“During the first three quarters, gold withdrawals from the SGE amounted to 1,128t, an 11% fall y/y and 18% below the 10-year average,” he said. “In general, weakening gold jewellery demand and the deceleration in investment growth were the main contributors.”
In terms of exchange-traded funds, Jia said that Chinese gold ETF flows turned positive in September, pulling in $110 million (RMB794 million) during the month.
“While collective holdings increased by just 1.2t to 91.4t, the total AUM climbed 4% to RMB53bn (US$7.8bn), supported by inflows and a rising gold price,” he wrote. “In general, we believe the record-shattering RMB gold price performance has been key in driving gold ETF inflows during the month. We believe that demand for gold ETFs would have been even stronger had investor attention not been diverted to Chinese equities.”
The net negative flows in August outweighed the moderate inflows seen in July and September, Jia noted, which led to “mild net outflows of RMB533mn (-US$74mn, -1t) in Q3, the first quarterly outflow since Q2 2023. Nonetheless, thanks to strong inflows during H1, Chinese gold ETFs have captured RMB16bn (+US$2.3bn, +30t) y-t-d, outpacing every other country.”
Turning to the gold futures market, Jia wrote that trading volumes at the Shanghai Futures Exchange fell to an average of 172 tonnes in September, which was 25% lower than August’s average but still 5% above the five-year average. “The jump in local equities, which attracted tremendous attention from investors, and the declining RMB gold price volatility may have lowered interest from tactical traders,” he said.
Meanwhile, the latest data from China Customs showed that gold imports dwindled to almost nothing in August. “Despite a mild m/m rebound in wholesale gold demand during August, China’s net gold imports only amounted to 10t, 27t lower than a very weak July, marking the lowest since February 2021 when COVID-related restrictions limited imports,” Jia said.
The WGC attributes the low import figures to “The local gold price discount, which discouraged importers,” as well as persistently subdued gold demand, as “while there was a m/m rebound in gold withdrawals from the SGE in August, they stayed well below the 2023 level and the long-term average.”
Finally, Jia noted that China’s central bank held off on gold purchases for the fifth consecutive month in September, keeping China’s official gold reserves unchanged at 2,264 tonnes. “Nonetheless, by the end of the month, gold’s share of China’s foreign exchange reserves rose to 5.4%, thanks to the higher gold price,” he said. “So far in 2024, China’s reported gold purchases total 29t, all of which were accumulated between January and April.”
Looking ahead, Jia said that with Q4 being the peak season for gold consumption in China, the WGC expects gold demand to improve. “And as the government’s aggressive stimulus package gradually unfolds and the potential of further fiscal support lies ahead, we believe an uplift in consumer confidence and disposable income should help support gold jewellery consumption,” he said. “But on the other hand, as investor risk appetite picks up, investment demand for gold may slow.”
