In Gold Demand Analysis, This Oriental Power Can Never Be Excluded

Gold Demand Analysis and China
Published on: January 22, 2024

In 2023, despite the surge in gold prices denominated in RMB, China’s gold demand continues to show a strong momentum. According to the World Gold Council’s Global Gold Demand Trends report, China’s total domestic gold jewelry demand reached 481 tons in the first 9 months of 2023, representing an 8% year-on-year growth. Jewelry manufacturing is the primary driver of this demand, followed by investment in gold bars and coins.

China is the world’s largest gold market, and thus its gold demand significantly impacts the global gold market.

The World Gold Council stated that gold performed well in 2023. Supported by geopolitical risks, central bank large-scale gold purchases, and enhanced expectations of major central bank interest rate cuts, the USD-denominated gold price achieved a 14% return, while the Shanghai gold price, denominated in RMB, rose by 17% in 2023, outperforming other major RMB-denominated assets.

In 2023, gold withdraws from the Shanghai Gold Exchange (SGE) was 1687 tons, a 7% year-on-year increase, exceeding the five-year average by 3%. The main reasons for this demand rebound are the relatively low base in 2022, China’s economic recovery in 2023, and the increasing attractiveness of gold throughout the year.

Despite the ups and downs of China’s economy following the pandemic, gold demand continues to grow. In the first 3 quarters of 2023, the sales of gold and silver jewelry in China increased by 12.2%. The president of the China Jewelry Industry Association stated that the growth in jewelry sales is nearly double that of the entire retail industry. In addition, jewelry exports have returned to pre-pandemic levels, reaching around 66.7 billion RMB in 2022, an 18% increase from 2019. From January to June 2023, jewelry exports increased by 13.3% compared to the same period last year, reaching approximately 39.4 billion RMB.

In addition to jewelry sales, Chinese investors’ demand for gold saw a sharp increase in 2023. In the third quarter alone, the demand for gold bars and coins in China reached its highest level since the same period in 2018, at 82 tons, a 16% year-on-year increase, surpassing the average levels of the third quarters of the past 5 and 10 years. Investment demand for gold increased by 26% in the first 9 months of 2023 compared to 2022.

Furthermore, the World Gold Council pointed out that in 2023, China’s gold ETF market witnessed a net inflow of approximately 5 billion RMB (about 654 million USD), leading the global demand for gold ETFs. By the end of 2023, the total assets under management (AUM) of gold ETFs in the Chinese market reached 29 billion RMB (about 4 billion USD), setting a record high denominated in RMB. The total holdings increased by 10 tons to 61.5 tons.

Since November 2022, the People’s Bank of China has been continuously acquiring gold. The latest data disclosed on the official website of the People’s Bank of China shows that by the end of December 2023, China’s gold reserves amounted to approximately 2,235.41 tons (71.87 million ounces), an increase of about 9.02 tons (290,000 ounces) from the previous month. This marks the 14th consecutive month of gold reserve accumulation, with a total increase of approximately 287.09 tons (9.23 million ounces).

The substantial increase in gold holdings by the central bank is beneficial for maintaining national economic security, ensuring the investment resilience of the financial market, and preparing for the internationalization of the renminbi. Despite the 14 consecutive months of accumulation, the proportion of gold reserves in China’s foreign exchange reserves remains relatively low at 4.3%. Inflation, geopolitical risks, sanction risks, and the multipolarization of the global reserve currency system are driving forces for the central bank to purchase gold. This trend may continue for many years, even decades, and is expected to further support the performance of gold.

In 2023, the Shanghai-London gold price premium sharply rose, with an average annual premium of 29 USD per ounce, a premium rate of 1.5%, reaching a historical high. Additionally, on September 2023 (a premium of 75 USD per ounce, a premium rate of 3.9%), and on September 14th (a premium of 121 USD per ounce, a premium rate of 6.4%) also set records. The World Gold Council has stated that the main driving factors for the Shanghai-London gold price differential are mean reversion and domestic net supply.

Overall, in 2023, China’s gold demand demonstrated remarkable performance, with the central bank, jewelry manufacturing, and gold bar and coin investment serving as the primary driving factors.

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