China, the world’s largest gold consumer, has kicked off 2024 with a remarkable surge in gold demand, setting records in various categories, including wholesale demand and assets under management (AUM) in gold Exchange-Traded Funds (ETFs).
In January, wholesale gold demand in China reached unprecedented levels, hitting a record high. Gold withdrawals from the Shanghai Gold Exchange (SGE) surged to an impressive 271 tonnes, marking a substantial 95% increase compared to the same period in 2023 and a robust month-on-month growth of 65%. These withdrawals, representing China’s wholesale gold demand, have a significant impact on the global gold market.
Traditionally, January witnesses a strong uptick in gold demand in China as retailers restock ahead of the Lunar New Year celebrations. The World Gold Council notes that the elevated gold withdrawals from the SGE reflect a positive outlook for gold demand surrounding the Spring Festival holiday.
The strong performance of yuan-denominated gold prices in recent months has attracted investors seeking safe-haven assets amid weaknesses in local assets like stocks and real estate. This heightened interest has resulted in continued demand for gold bars and coins, prompting manufacturers and commercial banks to actively restock in preparation for the Spring Festival holiday.
Sales of “Year of the Dragon”-themed jewelry have further contributed to the surge in gold demand. The Year of the Dragon, considered an auspicious year, has bolstered Chinese jewelry sales.
Although gold prices in dollar terms experienced a decline in January, prices in yuan terms remained stable amid a weaker yuan. This stability, coupled with gold’s low correlation to Chinese assets, positions gold as an attractive diversification option for local investors.
In 2023, gold gained an impressive 17% in yuan terms, making it the second-best performing asset class in China. This robust performance has underlined gold’s resilience amid market fluctuations.
The surge in gold demand has pushed gold premiums higher in China, reaching an average of $47 per ounce (2.2%), up $9 month-on-month. This premium signifies that Chinese investors are willing to pay $47 above the international benchmark spot price, demonstrating strong confidence in gold as a valuable asset.
Assets under management in China’s gold ETFs also witnessed a significant increase in January, reaching a record high of $4 billion. This surge in AUM is attributed to strong demand and stable gold prices. Gold inflows into Chinese funds totaled 1.6 tonnes in January, bringing the total to 63 tonnes.
The safe-haven appeal of gold became apparent as Chinese stocks fell for a seventh consecutive month, prompting investors to seek refuge in gold as a hedge against economic uncertainties. Gold ETFs, offering liquidity and flexibility, became an attractive option for investors during this period.
While ETFs can be part of a sound investment strategy, the report emphasizes that they do not substitute for physical gold held personally or in secure storage facilities. The liquidity and convenience of ETF trading make them appealing to speculative investors, but physical gold remains a cornerstone for those seeking tangible, long-term wealth preservation.
