China’s gold market improves in January, sentiment suggests consumption is improving – World Gold Council

Wed Feb 19 2025

China’s domestic gold market improved in some areas in January with the central bank also purchasing bullion for the third straight month, and while imports lagged and ETF flows turned negative, sentiment suggests gold consumption is on the rise going forward, according to Ray Jia, Research Head, China at the World Gold Council (WGC).

Jia noted that gold started 2025 strong, with the LBMA and Shanghai benchmark prices both enjoying their strongest January in years

“Gold prices surged during the first month of 2025: the LBMA gold price PM in USD jumped 8% while the SHAUPM in RMB rose 5%,” he wrote. “A strengthening local currency and fewer trading days due to the Chinese New Year (CNY) holiday between 28 January and 4 February led to the relative underperformance of the RMB gold price.”

“Our analysis shows that heightened geopolitical risks – such as the Trump administration’s tariff policies – improving gold ETF inflows and rekindling inflation concerns were main contributors to the record-shattering gold price in January,” he added.

Meanwhile, wholesale demand improved on a month-over-month basis, but remained weak in annual terms. “125t of gold were shipped out from the SGE, a 3% m/m rise,” Jia said. “Seasonal stock replenishment from jewellery retailers, banks and other market participants ahead of the CNY holiday – a traditional peak season for gold consumption in China – was a main contributor.”

“But our pre-holiday field research in Shenzhen, the hub of China’s gold jewellery wholesaling and manufacturing, indicates weaker-than-usual sentiment among gold jewellery retailers,” he acknowledged. “With the gold price soaring and the past year’s demand picture reminding them of potential sustained weaknesses, gold jewellery retailers lowered their expectations for the holiday sales and stocked up less than previous years. And this is also reflected in the 54% y/y decline in January’s wholesale gold demand – but it is important to note that 2024 saw the strongest January in history – and it was 37% below the ten-year average.”

Chinese gold exchange-traded fund flows also turned negative last month. “Chinese gold ETFs lost RMB2.8bn (US$399mn) in January, equivalent to a 4.7t reduction in holdings,” Jia said. “After the month’s outflow, their total AUM fell to RMB70bn (US$9.8bn) and collective holdings reached 110t.”

The WGC believes these outflows were driven primarily by profit-taking ahead of the Lunar New Year to avoid the volatility in international markets while the local market was closed. “Meanwhile, improving investor risk appetite amid the stronger-than-expected Q4 and 2024 GDP data releases in the month may also have led to outflows from gold, the safe-haven asset,” he added.

China’s central bank holdings, on the other hand, rose for the third month in a row. “The PBoC announced another gold purchase to start 2025: the 5t increase lifted China’s official gold holdings to 2,285t, accounting for 5.9% of total foreign reserves,” Jia said. “China announced a total of 44t gold purchases during 2024 despite its six-month pause in the middle of the year. And we believe the PBoC’s move could have a positive impact on sentiment among local gold investors, as indicated by past anecdotal evidence.”

And while final import data for January is not yet available, gold imports ended 2024 with a year-over-year decline. “December saw China import 84t of gold, concluding Q4 with a total of 270t, based on the most recent data from China Customs,” the report noted. “While Q4 imports fell 14% y/y, they rose more than 160% q/q – the y/y weakness and q/q seasonal strength are in line with our observation of China’s gold demand during the quarter.”

China imported 1,225 tonnes of gold in 2024, a 14% year-over-year decline and 16% below the pre-COVID five-year average of 1,460 tonnes. “And we saw similar trends in China’s gold consumption in 2024, which fell 10% compared to 2023, leading to the decrease in imports,” Jia said.

Looking ahead, Jia said the New Year holiday period between late January and early February showed signs of a revival in consumption. “For instance, box office revenues during the holiday surged to a historical high and consumer spending on dining and travelling both rose compared to the same period in 2024,” he noted. “Gold consumption was also booming. Various information indicates that gold jewellery stores were busy during the holiday. Meanwhile, the climbing gold price continued to push consumers to lighter products.”

Jia said China’s investment picture is also improving. “The strong gold price performance, the central bank’s continued purchasing announcements and the local currency volatilities kept lifting investor attention for gold,” he wrote. “Currently, the online searches for gold topped their previous peak seen in 2013 (Chart 7), when gold demand in China surged to the highest in history. Our conversations with market participants indicate that gold bar sales maintained their stunning pace seen in 2024, even leading to inventory shortages for some.”

The World Gold Council believes that this recent positive trend could continue. “In tonnage terms, demand for gold jewellery may stay tepid – although value-preserving motives will provide some support – but bar and coin sales should remain hot – and any gold price adjustment could be viewed as a good opportunity to enter,” Jia said. “Lastly, we believe a recent announcement of policy changes that allows ten Chinese insurers to buy up to 1% of each company’s total assets in physical gold, as a pilot run, should provide longer-term support for local investment gold demand.”

Source: https://www.kitco.com/