Strong Chinese Gold Demand Continued in October

Gold demand remained strong in October according to the latest data released by the World Gold Council.

Both gold withdrawals from the Shanghai Gold Exchange (SGE) in October and gold imports in September were up year-on-year, and Chinese ETF gold holdings set a new record. These all signal 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.

Gold withdraws from the SGE totaled 137 tons in October. This was down 28% month-on-month, but the monthly dip was seasonal. Physical wholesale gold demand in China tends to be lower in October as manufacturers’ stocks remain ample following their active replenishing in September. There are also fewer trading days in the month due to the seven-day National Day Holiday. Comparing gold outloads in October to previous years reveals demand was relatively strong. Gold withdrawals from the SGE were 45% higher year-on-year and 50% stronger than the pre-pandemic level in 2019.

According to the World Gold Council, three factors helped drive higher gold outtake.

• A combination of stronger gold consumption in Q3 compared to the same quarter in 2020 and 2019,
• Heritage gold jewelry’s popularity among young consumers has raised the industry’s expectation for Q4
• Local jewelers are including more products of heavier weight in their inventories as their adoption of the per-gram pricing model increases: chunkier products lead to higher profits using this method.

China imported 85 tons of gold in October. That was 8 tons more than September.

Total gold imports in Q3 totaled 228 tons. That represents a 171-ton year-on-year increase and it was 43 tons higher than 2019.

Not only was Chinese gold consumption higher in Q3 2021 than both 2020 and 2019; Chinese mine output has also been squeezed. This has driven imports higher. 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.

Chinese gold investment demand is also strong. Collective holdings in Chinese gold ETFs hit 72 tons last month after five consecutive months of inflows. That’s the highest amount of gold ever held by Chinese ETFs in tonnage terms.

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.”