A report by the World Gold Council revealed a notable decline in liquidity in China’s gold market during August, as investors liquidated part of their holdings in physical gold and ETFs, while trading volumes in gold futures also fell. This trend was largely the result of widespread profit-taking in bullion, with investors rotating into equities that are experiencing a strong rally.
Despite this weakness on the investment side, Ray Jia, Head of Research, China at the WGC, pointed out that a rebound in jewelry demand and higher imports, combined with the ongoing global gold price rally, are expected to support investment demand in the coming months.
Price Gains Supported by Economic and Geopolitical Factors
Gold in China recorded another month of strong gains in August, driven by higher inflation expectations, market anticipation of U.S. Federal Reserve rate cuts, and ongoing dollar weakness. Geopolitical and trade-related risks also contributed to the rise.
However, wholesale demand fell to 85 tonnes in August, down 9 tonnes from July and 17 tonnes year-on-year, marking the weakest August since 2010. According to the report, this drop was largely due to subdued bar and coin sales, as investors shifted focus to the surging equity market, with the CSI300 Index jumping 10% in August – its strongest monthly performance since September 2024.
Gold ETFs
Chinese investors continued to cut back on gold ETF holdings. The market saw outflows of RMB 6 billion (US$834 million) in August, leading to a 2% drop in assets under management, now standing at RMB 148 billion (US$21 billion). Holdings fell by 7.7 tonnes to 189 tonnes.
Jia explained that strong equity performance, coupled with gold’s range-bound price movements through most of August, were the key factors weighing on ETF demand.
Futures Trading and Consumer Demand
Gold futures trading volumes on the Shanghai Futures Exchange fell 26% month-over-month to 231 tonnes per day, although still above the five-year average of 216 tonnes.
On the consumer side, jewelry retailers saw an uptick in stock replenishment around Chinese Valentine’s Day, though weak investment sentiment overshadowed this improvement.
Central Bank Purchases and Imports
The People’s Bank of China (PBoC) continued to build its gold reserves for the tenth consecutive month, adding 1.9 tonnes in August. This brought official reserves to 2,302 tonnes, accounting for about 7% of China’s total foreign exchange reserves. Since the start of 2025, the PBoC has purchased a total of 22.7 tonnes of gold.
Imports also showed a strong rebound. According to customs data, China imported 89 tonnes of gold in July, up 50 tonnes from June and 53 tonnes year-on-year. Expectations of rising demand in Q3, along with positive local price premiums, encouraged this increase.
The World Gold Council expects China’s gold investment demand to recover in the near term, supported by the ongoing rally in prices and retailers restocking ahead of the National Day holiday in October. Jewelry fairs and trade shows in September are also likely to boost wholesale demand.
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