Chinese Gold Demand Continues to Strengthen

Gold demand in China was up in September, as the country approaches a peak gold-buying season.

Both gold withdrawals from the Shanghai Gold Exchange (SGE) in September and gold imports in August were up, a sign that the Chinese gold market continues to recover after it was hit hard by the coronavirus pandemic.

China ranks as the world’s number one gold consumer.

According to the World Gold Council, withdrawals from the SGE rose to 191 tons in September. That represents a 27% month-on-month increase. G0ld withdrawals were 63% higher than in September 2019, before coronavirus battered the Chinese economy.

September is typically a strong month for wholesale gold demand in China as it leads up to an important holiday season. October is traditionally a big month for gold jewelry sales during the seven-day National Day Holiday in early in the month.

August gold imports into China came in at 76.9 tons. That was 10.3 tons higher than July and in line with August 2019.

Rising local premiums also signal growing demand for gold. The local gold price premium rose for the third straight month in September, averaging US$7.5/oz. That was $1.70 higher month-0n-month.

Investment demand for gold continues to increase in China as well. Chinese gold ETFs charted their fourth consecutive month of gold inflows amid weakened economic growth and a volatile stock market. Chinese ETFs now hold 72 tons of gold, the second-largest amount on record. Year-to-date, Chinese ETFs have added 11 tons of gold to their holdings.

Like the US, the Chinese economy is showing signs of stagflationary pressure. The World Gold Council says slowing economic growth might be supportive of gold investment demand in the coming months.

Overall gold demand was up 69.2%, coming in at just over 547 tons through the first 6 months of the year. China’s year-on-year gold consumption surged 93.9% in the first quarter alone.

According to the Global Times, the Chinese government implemented macroeconomic policies aimed at bolstering domestic gold consumption.

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.”

In addition to importing tons of gold, China ranks as the world’s biggest gold producer. While gold demand rebounded in the first half of 2021, Chinese mine output did not. Gold production fell 10.2% to just 152.8 tons. According to the Global Times, work accidents disrupted gold mine output in gold-producing East China’s Shandong Province.