China’s Gold Market Continues to Recover

Chinese gold imports have nearly returned to pre-pandemic levels and the world’s biggest gold market continues to recover.

According to the latest data reported by the World Gold Council, China imported 67.6 tons of gold in May. That was 65 tons higher than May 2020 and only three tons lower than May 2019, before the coronavirus pandemic gripped the country.

Last spring, China gave the green light for the import of 150 tons of gold. The report notes that China’s returning appetite for gold could potentially “support global prices.” Reuters called the size of the expected Chinese gold imports a “dramatic return to the global bullion market.”

China ranks as the world’s number one gold consumer, but imports plunged during the coronavirus pandemic as local demand for the yellow metal dried up. In 2019, Chinese gold imports averaged about 75 tons per month. Imports plunged in February 2020, falling to about 10 tons per month. The Chinese economy rebounded during the second half of 2020, and demand for gold coins, bars and jewelry has begun to recover. China’s year-on-year gold consumption surged 93.9% in the first quarter as demand rebounded to pre-pandemic levels.

“Recovery in macro economy and falling gold prices have also extended enthusiasm towards gold investment,” the China Gold Association said in a statement reported by Reuters, adding that demand for industrial used gold increased as well.

Household disposable income in the first half of 2021 rose by 12.6% y-o-y and is 15.4% higher than H1 2019. According to the World Gold Council, with healthy economic growth and various consumption stimuli, local retail sales of gold, silver, jade and gem jewelry remained above their pre-pandemic average in June. Retail sales of gold jewelt are above their 2019 average.

Withdrawals from the Shanghai Gold Exchange were also up in June, a sign of stronger retail demand. According to the WGC, relatively strong gold consumption through April and May led to a greater need for local gold manufacturers to replenish stocks. Consequently, their gold withdrawals from the SGE saw a month-on-month rebound in June on the heels of the previous two-month decline.

Investment demand for gold was also healthy last month. Chinese gold ETFs added 2.1 tons of gold in June. According to the World Gold Council, Chinese investors lost interest in gold ETFs early in the month as the gold price weakened. This led to a 1.7-ton decline in Chinese ETF holdings. But as the gold price decline accelerated, Chinese investors saw it as a buying opportunity. Gold ETF holdings increased by 3.8 tons in the second half of June. According to the WGC, “This could have been driven by local investors taking advantage of a lower gold price in order to build long-gold exposure or enter the market.”