(Kitco News) – Sky-high imports, unprecedented ETF demand, and elevated price premiums show that China’s gold market continues to lead the world, but high prices look set to depress jewelry demand and slow central bank purchases, according to Ray Jia, China Research Head at the World Gold Council.
“Gold prices rose again in April, albeit at a slower pace than March,” Jia wrote in the latest WGC China update. “The LBMA Gold Price AM in USD rose by 5% whilst the SHAUPM in RMB saw a smaller increase of 3%.”
“Factors such as increased geopolitical risks and active futures trading contributed to gold’s strength in the month,” he said.
Jia pointed out that when compared to other major assets, the yellow metal has performed quite well to date this year. “April extended the RMB gold price return to 14% y-t-d and drew continued attention from local investors,” he said.
Gold’s local price appreciation was also matched with rising wholesale demand in the country.
“The industry withdrew 131t of gold from the SGE in April, 7t higher m/m and 10t higher y/y,” Jia wrote. “In general, investment strength cancelled the weaknesses in gold jewellery demand. Anecdotal evidence suggests physical gold investment remained strong amid persistent value preservation needs and the rising gold price, especially during the first half of April. But the gold price strength made many jewellers cautious about re-stocking for the traditional Labour Day holiday sales boost.”
China’s domestic price premium also reflected the rise in local demand, Jia noted. “On a monthly average basis, April’s premium rose to US$42/oz (1.7%), up US$16/oz m/m,” he wrote, adding that a closer look reveals an interesting pattern. “[W]hile the continued price surge drove up investment demand during the first half of the month, the price pullback later appears to have cooled momentum.”
The demand for Chinese gold ETFs during the month was beyond all expectations, the WGC data showed. With gold ETFs seeing inflows five months in a row, April’s figures were the strongest ever recorded.
“April attracted RMB9bn (US$1.3bn), the strongest month on record, pushing the total AUM to another historical high of RMB46bn (US$6.4bn),” Jia said. “Meanwhile, holdings also registered the largest ever monthly increase, rising 17t to 84t.”
“The ongoing gold price strength, especially in early April, continued to attract investor attention, but as the gold price momentum decelerated towards the end of the month, gold ETF demand in China also cooled,” he noted.
The official sector’s gold reserves also rose in April, though the rate of growth has slowed in recent months.
“April saw no stoppage in the PBoC’s gold purchasing spree,” Jia said. “Based on the bank’s recent announcement, official gold reserves in China saw their 18th consecutive rise, adding 2t in April. This is the slowest rise since the PBoC resumed announcing gold purchases in November 2022.”
China’s official gold holdings now total 2,264 tonnes, and account for 4.9% of the country’s total foreign exchange reserves, the highest-ever proportion for the yellow metal. “So far in 2024, China has accumulated 29t of gold,” Jia noted. “And during the past 18 months holdings have increased by 316t or 16%.”
Turning to imports, while the April numbers have yet to be released, Jia said that a solid March propelled Q1 gold imports to their highest levels in nine years.
“China imported 85t of gold in March, an 8% rise m/m and a 34% fall y/y,” he said. “This is in line with local wholesale gold demand trends during the month: stable m/m and weaker y/y. March pushed the Q1 total to 324t, 17% higher y/y and the strongest quarter for imports since 2015.”
He noted that the high level of imports in Q1 was largely driven by stronger local demand during the quarter.
Looking ahead, Jia said anecdotal evidence from industry insiders indicates that the mainland’s gold jewelry consumption during the five-day Labor Day holiday in early May was “tepid” as consumers were scared away by the high prices. “Meanwhile, investment demand showed signs of slowing in late April and early May as gold price volatility pushed investors to the sidelines, apparently awaiting a clearer price trend,” he wrote.
The WGC projects jewelry consumption will likely remain weak due to a combination of seasonality and high gold prices. “But despite some signs of weakening, we believe the continuing need for value preservation and gold’s current high profile will likely support gold investment in China,” Jia said.
