China, known as the world’s biggest gold market, through an important index, has clearly made a strong comeback in its wholesale gold demand throughout September. This resurgence is historic. It is totally consistent with the megatrend that we’ve observed in the current gold bull market. One of the biggest drivers of rising prices has been physical gold demand from China. Chinese wholesale gold demand last month came in at 118 tonnes according to the latest figures. This is a huge 33 tonne month-on-month increase! As we’ve noted recently, this doesn’t tell the whole story since that number reflects a steep drop of about 3 percent compared to May of last year.
In the first three quarters of 2023, China experienced a wholesale gold demand of 297 tonnes. This is further indication of sustained demand for gold from Chinese consumers and investors. The success of Chinese gold-backed funds is a testament to this continued demand. In September by itself, they accumulated 4.9 tonnes of gold worth ¥4.5 billion, or roughly $622 million. The sustained investment in gold-backed products reflects a persistent demand for precious metals even as economic conditions change and markets become more volatile.
The growth trend in the bar and coin segment is really alarming. That’s because demand exploded by 44 percent year-on-year during the first half of the year! Then, in a record-breaking quarter, Chinese investors acquired 115 tonnes of gold bars and coins in Q2. This increase is a huge indication of their deep faith in gold being a safe asset.
Even with the quarterly gain, September’s demand numbers at the wholesale level look like a mixed bag. Despite the month bouncing back from August, year-over-year comparisons are still a little negative. In line with this trend, gold imports into China remained constant over the course of September, paving the way for a calm market landscape.
The Shanghai Gold Exchange had its own record-breaking month in September. The Shanghai price broke records 36 times in the first nine months of the year. It has just had its highest month ever – in September. This upward trajectory in price is solely the result of local demand dynamics interacting with global market influences.
In September, Chinese gold exchange-traded funds (ETFs) reached an extraordinary record. Their assets under management (AUM) exploded to a new month-end record high of ¥169 billion ($22 billion). This growth is an indicator that more investors are viewing gold as a modern financial instrument. That’s because it speaks to their confidence in gold’s long-term value.
In China, yuan-denominated gold futures trading had a record surge in speculative inflows. Investor involvement surged by 82 percent over the five-year average. Traders and investors remain massively interested in the gold market. This increased activity is a sign that they’re looking to take advantage of any big moves in either direction.
Market analysts are calling this rebound in gold demand a sign of stronger factors, such as a better risk appetite from Chinese investors. The change in sentiment coincides with more positive views about economic growth. Together with the robust data from Q2 and amid considerably lower risk associated with U.S.-China tariffs, this change was overdue.
“Chinese investor risk appetite improved as the need for safe-haven assets declined: July and August saw better growth expectations on the back of strong Q2 economic data and a reducing U.S.-China tariff risk.” – World Gold Council Analyst
The global economic picture is shifting rapidly. China has really taken hold and set the ground for itself to be a key gold player. Demand is heavy, changing and setting new records under Shanghai’s pricing structure. Stakeholders from many sectors are eager to understand how these trends are impacting local investment strategies and the international gold markets.