Key highlights:
- Both the Shanghai Gold Benchmark PM (SHAUPM) in RMB and the LBMA Gold Price AM in USD bounced higher in July, further extending their y-t-d gains
- The industry withdrew 89t of gold from the Shanghai Gold Exchange (SGE) during the month, a 26t y/y fall and the weakest July since 2020. Continued weaknesses in gold jewellery consumption and physical investment weighed on wholesale gold demand
- Inflows into Chinese gold ETFs were sustained during July (+RMB783mn, +US$108mn). This is the eighth consecutive month of inflows, lifting total assets under management (AUM) to RMB53bn (US$7.3bn) and collective holdings to 94t, both the highest in history
- China reported no gold purchases in July, for the third consecutive month, leaving total official gold holdings unchanged at 2,264t, 4.9% of total foreign reserves. China has announced a 29t y-t-d addition to its gold reserves; purchases took place during the first four months of 2024.
Looking ahead
As noted in our recently published Gold Demand Trends, we expect the following:
- The stabilising price and seasonality – manufacturers usually replenish their inventories in August ahead of major gold jewellery exhibitions in September – may help support wholesale demand in the near future. But the key to revival in gold jewellery demand lies in consumer confidence in China’s economic growth and, currently, that remains at a record low
- While we believe gold ETF demand may last amid weaknesses in local assets, bar and coin investors may continue to adopt a “wait and see” attitude until there is a clearer uptrend in the gold price.
Gold rebounded in July
Gold captured gains last month (Chart 1). Broadly speaking, the gold price has been supported by intensifying expectations of a cut from the US Fed in September – which has weakened US Treasury yields and the dollar – and rising safe-haven demand on various fronts.
The SHAUPM in RMB increased by 2.6% while the LBMA Gold Price PM in USD rose 4%. The appreciating RMB against the dollar limited Chinese gold price strength in the month. But it is worth mentioning that the SHAUPM reached a record high of 577 yuan/gram on 17 July.
Chart 1: Gold rebounded in July
Monthly changes of SHAUPM and LBMA Gold Price AM*
The gold price in RMB has surged by over 17% y-t-d, outperforming most assets globally (Chart 2). Strong central bank gold purchases globally, heightened geopolitical risks and a weak RMB, among other factors, pushed the local gold price to its highest on record.
Chart 2: Gold has outperformed major assets so far in 2024*
Wholesale gold demand remains weak
Gold withdrawals from the SGE remained low in July, totalling 89t, a mild m/m rebound of 3t and 26t lower y/y (Chart 3). This represents the weakest July since 2020 and well below the 10-year average of 142t. While seasonal strength – wholesale gold demand tends to gradually pick up after Q2 – helped the mild m/m recovery, sustained strength in the local gold price, alongside amplified volatility, continued to weigh on gold jewellery consumption.
Meanwhile, the adjustment in the gold price during the second half of July kept bar and coin investors on the sidelines. Tepid gold demand also led to further declines in the Shanghai-London gold price premium during July.
Chart 3: Wholesale demand remained below the long-term average
Gold withdrawals from the SGE in 2024 and the 10-year average*
Demand for gold ETFs remained positive and futures trading volumes rebounded
Chinese gold ETFs registered their eighth consecutive monthly inflow (+RMB783mn, +US$108mn), albeit at a slower pace than in previous months (Chart 4). Meanwhile, collective holdings rose by 1.3t. We believe that continued weaknesses in local equities and the record-breaking gold price were the main drivers of sustained gold ETF demand during July.
So far in 2024 inflows into Chinese gold ETFs have amounted to RMB18bn (US$2.5bn), the strongest of all time. Their total AUM surged by 80% to RMB53bn (US$7.3bn) and holdings jumped by 52% to 94t, both reaching record highs.
Chart 4: Gold ETF flows stayed positive in July
Chinese gold ETF AUM and holdings
The average daily gold futures trading volume at the Shanghai Futures Exchange (SHFE) rebounded by 30% m/m during July (Chart 5) . Helped by renewed interest from short-term tactical investors amid the strong gold price performance, July’s 189t/day stands 16% above the five-year trading volume average of 163t.
Chart 5: Trading volumes at the SHFE rebounded
Monthly and the five-year average trading volumes in the active gold futures contract*
Gold imports fluctuated with local gold demand
Net gold imports into China amounted to 57t in June, according to the latest China Customs data; a 57% plunge m/m and a 40% fall y/y (Chart 6).1 We believe this notable downturn was due to the weakest June for local wholesale gold demand since 2020, as well as a sharply lower Chinese gold price premium during the month, which discouraged importers.
China imported 851t of gold in the first half of 2024, 10% higher y/y. Despite a sluggish Q2, strong local gold demand during Q1 supported imports over the period.
Chart 6: Gold imports fell in June amid tepid demand*
Footnotes:
Including all imports under all import regimes under HS code 7108.
