World Gold Council: Weak Chinese Demand Weighed on Gold in H1, While Central Bank Purchases Continued to Support the Market

A new report released by the World Gold Council (WGC), authored by Ray Jia, Head of Research for Asia Pacific (ex-India) and Deputy Head of Trade Engagement (China), showed that China's gold market delivered mixed performance during the first half of 2026, as weaker prices and soft physical demand in June contrasted with continued institutional investment and steady central bank purchases that provided longer-term support.

According to the report, June marked a turning point for the gold market, with the sharp decline during the month erasing gains accumulated earlier in the year. As a result, gold ended the first half of 2026 down approximately 8% in US dollar terms and 10% in Chinese yuan, marking its first semi-annual decline since 2021.

The report attributed the weakness primarily to the Federal Reserve's hawkish monetary policy stance, which strengthened the US dollar and pushed real bond yields higher. These developments prompted investors to reduce their exposure to gold while options market positioning turned increasingly bearish, adding further pressure on prices.

Despite the decline, the World Gold Council noted that Chinese gold exchange-traded funds (ETFs) continued to post strong performance during the first half of the year. Net inflows reached RMB40 billion (US$5.6 billion), making it the second-strongest first half on record, while total holdings increased by 29 tonnes compared with the beginning of the year.

June alone, however, recorded the largest monthly outflow ever from Chinese gold ETFs, with investors withdrawing approximately RMB15 billion (US$2.2 billion). Combined with falling gold prices and growing investor interest in China's equity market, total assets under management declined to RMB243 billion (US$36 billion), while ETF holdings fell to 277 tonnes.

In the derivatives market, average daily trading volumes of gold futures on the Shanghai Futures Exchange (SHFE) rose to 305 tonnes per day in June. Although below the 2025 average, trading activity remained comfortably above the five-year average, indicating continued demand for hedging against market volatility.

Physical demand showed modest improvement during June as gold withdrawals from the Shanghai Gold Exchange (SGE) increased 36% month-on-month to 87 tonnes, supported by supply-chain restocking and stronger buying of gold bars and coins as retail investors took advantage of lower prices.

Nevertheless, the report stressed that the recovery was insufficient to change the broader picture. Total SGE withdrawals reached 598 tonnes during the first half of the year, down 12% year-on-year and 27% below the ten-year average, reflecting continued weakness in the jewellery sector.

Meanwhile, the People's Bank of China (PBoC) continued to expand its official gold reserves, purchasing 15 tonnes in June—the largest monthly addition since October 2023. China's official gold holdings consequently rose to 2,346 tonnes, representing approximately 8% of the country's total foreign exchange reserves.

The World Gold Council noted that the June purchase brought the PBoC's total gold acquisitions during the first half of 2026 to 40 tonnes, while cumulative purchases over the past 20 consecutive months reached 82 tonnes, extending the longest uninterrupted buying streak in the central bank's history.

The report also showed that China imported 151 tonnes of gold in May, slightly lower than in April due to softer domestic demand. However, imports remained well above year-earlier levels, supported by positive local gold price premiums that continued to encourage imports.

Looking ahead, the World Gold Council expects gold jewellery demand to remain subdued during the seasonal off-peak period. However, stabilising gold prices could provide gradual support to consumer demand, while investment demand will continue to depend on the direction of gold prices and the performance of China's equity markets. Continued purchases by the People's Bank of China are expected to remain one of the key long-term pillars supporting the country's gold market.