(Kitco News) – China’s gold market took a bit of a breather in May, with prices dropping and ETFs seeing the first outflows in months, and while the central bank continued its string of recent purchases, the latest data point to sustained weakness in consumer demand, according to Ray Jia, Research Head, China at the World Gold Council (WGC).
“Gold prices fell mildly in May,” Jia noted. “Cooling gold investment momentum – as investors sold gold ETFs and gold’s implied volatility fell – overshadowed the lagging impact of a weaker dollar, leading to the gold price weakness.”
The weaker monthly performance ended the SHAUPM’s five-month streak of gains, while the LBMA Gold Price PM’s four-month streak also ended.
“The gold price in RMB was weaker than that in USD amid a notable appreciation in the local currency against the dollar,” he said. “Nonetheless, during the first five months of 2025, returns of the SHAUPM in RMB and the LBMA Gold Price PM in USD have stayed strong at 23% and 17%, respectively.”
Chinese wholesale demand also saw a predictable seasonal dip last month.
“The amount of gold leaving the SGE in May totalled 99t, a 35% fall m/m,” Jia noted. “This decline was seasonal: the off season for gold consumption in Q2 and early Q3 usually supresses manufacturers’ re-stocking activities. In addition, cooling bullion investment momentum – as safe-haven demand reduced amid easing US-China trade tensions and the gold price performance weakened – also contributed to the m/m fall.”
“Despite a 21% y/y increase compared to the very weak May of 2024, last month’s withdrawals were below the 10-year average,” he wrote. “As noted previously, the near-record gold price, while lifting bullion investment, has substantially weakened gold jewellery sales – a major component of SGE gold withdrawals – and led to weaker wholesale gold demand.”
Gold ETF demand also flipped into negative territory for the first time since the winter.
“Chinese gold ETFs saw outflows in May, losing RMB3.3bn (US$461mn) and ending their three-month inflow streak,” Jia said. “Following these outflows and the gold price decline, total Chinese gold ETF AUM fell by 4% m/m to RMB153bn (US$21bn). Meanwhile, holdings dropped 4.6t to 198t.”
Improved risk appetite among Chinese investors was a major driver of outflows from gold ETFs last month. “The temporary tariff truce between China and the US improved investor sentiment, evidenced by stronger equities, and the appreciating RMB reduced the safe-haven demand for gold,” he noted. “The weakening gold price momentum may have also discouraged investors.
But despite the May outflows, gold ETF demand remained strong to date in 2025, as “holdings have surged 84t and inflows have amounted to RMB63bn (US$8.6bn) – both unseen levels compared to the same periods throughout history.”
The momentum in the gold futures market also cooled in May, falling 27% month over month to an average of 628 tonnes per day. “However, traders’ enthusiasm for gold futures stayed elevated: the May volume remained well above its five-year average of 216t/day,” Jia noted.
And the recent string of gold purchases by the People’s Bank of China also continued last month.
“The PBoC has now reported gold purchases for seven months in a row, adding 1.9t to its reserves in May,” Jia said. “Currently, China’s official gold holdings have risen to 2,296t, 6.7% of its total foreign exchange reserves.”
In value terms, China’s gold reserves now total $242 billion after a 1% month-over-month decline due mainly to weaker gold prices. The PBoC has reported 16.8 tonnes of gold purchases so far in 2025.
Imports rebounded in April, the WGC noted, with the May data not yet released.
“Net gold imports into China totalled 112t in April, based on the latest data available from China Customs, a notable m/m rebound of 66t and a mild 14t y/y decline,” Jia said. “The escalating US-China trade tension during the month raised investor safe-haven demand for gold in China significantly – both bullion sales and gold ETF demand surged – leading to an increased need for imports. The rocketing local gold price premium in the month – amid strong investment demand – also encouraged importers.”
Looking ahead, Jia noted that China’s economy sent mixed signals in May.
“Official PMIs – focusing on larger enterprises – in manufacturing and service sectors both showed rebounds (Chart 7), thanks to the PBoC’s rate cuts, spending during the five-day Labour Day holiday, and a reduction of US tariffs.”
“But export growth decelerated sharply in the month, dragged mainly by the US: the temporary US-China trade truce occurred in mid-May and it takes time for orders to turn into actual shipments,” he warned. “Meanwhile, the global economy slowdown also impacted exports. Domestic demand remained somewhat sluggish as May’s headline CPI was unchanged at -0.1% y/y, highlighting ongoing deflationary pressure in China.”
“This divergence underscores the fact that while China’s economy, at a macro level, might have received some support from monetary and fiscal policies, sentiment at the consumer level is yet to recover,” Jia said. “This can also be observed in recent credit data trends: y/y increases in total social financing were mainly driven by strong government debt issuance amid various fiscal support while households remained reluctant to borrow.”
These challenges, along with seasonal weakness, mean that gold jewellery consumption could remain tepid in coming months. “But the stabilising gold price and the above-mentioned rate cuts may provide some support,” he added.
“In the near term, easing trade tensions and gold price consolidation – should it continue – may further weigh on safe-haven investment demand for gold,” Jia concluded. “But we believe that declining government bond yields, together with elevated global geopolitical risks, may provide support for gold investment in the mid-to-longer term.”
