China’s gold market showed notable resilience in February, supported by strong investment demand and continued purchases by the central bank, despite diverging price trends between global and domestic markets, according to a report by the World Gold Council.
The report noted that gold prices moved in different directions during February. The benchmark gold price in London, denominated in U.S. dollars, rose by 4.8%, supported by heightened geopolitical risks and lower U.S. Treasury yields. In contrast, the benchmark gold price in Shanghai, denominated in yuan, declined by 1.3%, mainly due to the appreciation of the Chinese currency against the dollar and the impact of the Chinese New Year holiday, which reduced trading activity and physical gold withdrawals.
Despite this divergence, gold prices remained elevated in March. Globally, gold stabilized above the $5,000-per-ounce level, while prices in the Chinese market held firmly above 1,100 yuan per gram, supported by continued safe-haven demand amid ongoing geopolitical tensions.
Relatively Strong Demand During the Holiday Season
Gold withdrawals from the Shanghai Gold Exchange totaled 85 tonnes in February, the month that coincided with the Chinese New Year holiday, marking a 32% decline compared with January due to fewer working days and temporary closures across many factories during the holiday period.
On a year-over-year basis, however, wholesale gold demand declined by only 5 tonnes compared with February last year, reflecting relative resilience in the market. The report attributed this to lower yuan-denominated gold prices, which encouraged jewelry manufacturers to restock ahead of the holiday, in addition to sustained seasonal demand for bullion and investment products.
Strong Inflows into Gold ETFs
Chinese gold exchange-traded funds (ETFs) continued to attract investment for the sixth consecutive month, recording inflows of 4.5 billion yuan (about $640 million) in February.
Total holdings of these funds increased by 3.6 tonnes to reach 290 tonnes, a new record high. However, assets under management declined by 1% to around 331 billion yuan due to the drop in domestic gold prices.
According to the report, early-month price volatility prompted some investors to temporarily reduce their positions before inflows resumed as prices stabilized. Investment demand was supported by both dip-buying and rising safe-haven demand amid global geopolitical tensions.
Inflows accelerated further at the start of March, driven by escalating geopolitical risks and volatility in global equity markets.
Higher Activity in the Futures Market
Average daily trading volumes of gold futures on the Shanghai Futures Exchange rose to about 505 tonnes in February, an increase of 11% compared with the previous month.
This increase reflected stronger interest from tactical traders in gold futures amid heightened price volatility, particularly during the early days of February when market fluctuations intensified.
China Continues to Increase Gold Reserves
Meanwhile, the People's Bank of China continued to expand its gold reserves for the sixteenth consecutive month, adding one tonne in February to bring total holdings to 2,309 tonnes.
Gold now represents about 10% of China’s total foreign exchange reserves, underscoring Beijing’s continued reliance on the precious metal as a tool for reserve diversification and protection against global economic uncertainty.
Market Outlook
The report expects China’s gold jewelry sector to experience some seasonal softness in the coming period, particularly if gold prices remain elevated. However, investment demand for gold is likely to remain strong, supported by ongoing geopolitical risks and volatility across global financial markets.
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