(Kitco News) – China’s gold market saw strong price growth and record ETF inflows in February, while the improving outlook for the domestic economy points to a recovery for jewelry demand going forward, according to Ray Jia, Research Head for China at the World Gold Council (WGC).
Jia noted that gold prices continued to rise internationally in February, but were even stronger in China. “The relative outperformance of the gold price in RMB, compared to its USD peer, was mainly driven by a 0.5% depreciation in the local currency during the period,” he said.
“Although gold prices adjusted lower in the latter half of February, they continued to refresh records during the period, both in USD (on 11 occasions) and RMB (on six occasions),” he noted. “Our analysis shows that market momentum, generally lowering yields and a weaker dollar drove gold higher.”
Wholesale demand saw a seasonal decline, with gold withdrawals from the SGE declining 28% month-over-month in February to 90 tonnes.
“This weakness is mainly seasonal – wholesalers and manufacturers typically buy less gold after the CNY holiday due to active replenishment prior,” Jia wrote. “In fact, every February on record – except 2023 when pent-up demand from COVID restrictions pushed up demand – has seen a m/m decline, averaging 41% over the past ten years. Lower demand during the month led to a fall in the Shanghai–London gold price spread.”
He warned, however, that the wholesale market still appears weak year-over-year, with an even larger decline in annual terms.
“As previously noted, the soaring local gold price continues to suppress local gold jewellery demand in tonnage terms, leading to weaker stocking activities among jewellery manufacturers, who account for the lion’s share of SGE withdrawals,” he said. “In contrast, investment demand for gold has been robust as the soaring gold price attracts investors. But it was not enough to offset the jewellery sector weakness, resulting in a 29% y/y fall in February’s total withdrawals.”
Turning to the investment picture on the mainland, Jia noted that it couldn’t have been stronger last month, with Chinese gold exchange-traded funds recording record-level inflows.
“Chinese gold ETFs added RMB14bn (US$1.9bn) in February, the largest ever monthly inflow,” he said. “Sizable inflows and a rising gold price pushed Chinese gold ETFs’ total AUM to RMB89bn (US$12bn), another month-end peak.”
Total ETF holdings also rose by 21 tonnes to 131 tonnes, another all-time record high. “The strong local gold price performance in the month – especially the gapping up at opening on 5 February when investors came back from the CNY holiday – attracted attention,” Jia wrote. “Meanwhile, concerns around the Trump administration’s trade policy may have sparked some safe-haven flows.”
China’s central bank also extended its sovereign gold purchases for a fourth month in a row. “The PBoC reported another 5t gold purchase in February, the fourth consecutive month of gold reserve increases,” Jia noted. “At the end of February, China’s official gold holdings stood at 2,290t, the highest on record, accounting for 5.9% of total foreign exchange reserves. During the first two months of 2025 Chinese gold reserves increased by 10t in total.”
Looking ahead, the World Gold Council believes that China’s economic growth is showing signs of improvement, which should boost the underperforming sectors of the gold market.
“Official manufacturing and composite PMIs both exceeded the market consensus, expanding in February,” Jia said. “And new loans during January surged to a record high, far outpacing expectations – also reflecting policy stimulus to shore up credit and bank loans front-loading patterns.”
“More importantly, January also saw a tick up in consumer confidence – although the sustainability of this improvement needs to be monitored closely,” he added. “Meanwhile, the ‘two sessions’ revealed an official growth target of 5% for 2025, together with stronger fiscal and monetary policy supports, including a higher deficit-to-GDP ratio of 4% and further interest rate cuts to achieve this goal.”
Jia said that if the gold price continues to stabilize and the country’s economic prospects keep improving, the gold jewelry sector will likely stabilize as well. “We continue to believe that investment demand for gold could also remain generally robust as investors anticipate further price gains and concerns of the US trade policy uncertainties push up safe-haven buying,” he concluded.
