September represented a month of firsts in China’s gold market as local premiums hit new highs amid rising demand levels, tightening import restrictions, and upcoming holidays. The Shanghai-London price premium on gold hit a new record high during the month, with the average sitting around $75 per ounce, well above typical pricing.
The total assets under management in Chinese gold ETFs increased for the fourth month in a row during September as well, reaching RMB27 billion, or $3.7 billion, with the assets totaling 59.7 tons. The inflow for the month came to RMB1.9 billion, or $266 million, totaling 4.2 tons. When interpreting the total quarter three figures, the numbers came to RMB4 billion, $611 million, and 9.5 tons of assets.
The nation’s central bank, the People’s Bank of China, continued to buy gold during September as well, increasing reserves by a whopping 26 tons. The nation’s total reserves now sit at 2,192 tons. With September’s figures included, the People’s Bank of China purchased 78 tons of gold during quarter three.
After September’s purchases, the People’s Bank of China completed 11 months of net gold purchases in a row. China remained the top gold buyer in the world, just ahead of Poland and Uzbekistan.
The recent Golden Week Holiday that extends for eight days in China yielded somewhat disappointing returns in terms of retail demand, given the high local gold prices. Consumers purchased less gold than typical because of the elevated pricing that occurred after recent demand spikes. Nonetheless, analysts expect demand to remain high during the upcoming wedding season.
Gold prices (both local and international) experienced some volatility during September due to numerous factors. Between Treasury yields rising and the U.S. dollar strengthening, bullion faced numerous headwinds. Despite this, the precious metal remained above critical lines for the majority of the month in both local and international pricing before hitting its low at the end of the month right before the outbreak of conflict in Israel, which once again shot prices up.
The weakness in gold prices during September gave rise to the Shanghai Gold Price Benchmark during quarter three to 0.4%. With this rise, the SHAUPM remains China’s top-performing RMB asset after achieving a 9% gain during the first three quarters of the year.
Wholesale gold demand in China increased slightly above the five-year 166-ton average, given key support from the Golden Week Holiday. “The industry’s active stock replenishing ahead of the Golden Week Holiday added to support from key jewelry fairs – which boded well for the jewelry trades – drove the seasonal rise,” the World Gold Council noted in a report.
The most notable gold-related event during the month was the spread between local and international gold prices. Premiums in China reached unforeseen levels, with a record set on September 14 at $121 per ounce. September’s average of $75 per ounce also beat the previous monthly premium average of $40 per ounce set in August.
Withdrawals during quarter three reflected a healthy recovery from the last five years despite the year-on-year figure showing a sharp decline. The year-on-year withdrawal figure showed a 12% drop, though when compared to the five-year average, withdrawals in quarter three were 2% higher, reflecting solid recovery from COVID-19 ramifications.
Gold ETFs achieved a fourth consecutive month of net inflows. As local bullion prices surged and the CSI300 stock index plummeted, more investors flocked toward ETFs.
“By the end of Q3, total AUM in Chinese gold ETFs reached RMB27bn (US$3.7bn), accumulating an inflow of RMB4bn (US$611mn) during the quarter, the strongest since Q3 2020 in RMB terms,” the World Gold Council explained.
At the same time, China’s central bank continued stockpiling gold, following its 11-month streak. By the end of September, China’s gold reserves totaled 2,191 tons, representing a 26-ton increase from the month prior. The People’s Bank of China still holds around 4% of its reserves in gold, allowing plenty of room for more bullion purchases.
So far, in 2023, the People’s Bank of China has purchased 181 tons of gold, leading the purchase spree across the globe. During quarter three, the nation stockpiled 78 tons.
Based on the last 11 months, China will likely remain at the forefront of gold-buying in October as well. The nation continues purchasing gold to pursue its de-dollarization strategy. China wants to weaponize the U.S. dollar, and gold provides a universal, secure means of doing so.
Moving forward, traders can continue assessing market trends to predict how gold may respond. As always, investors should consult their financial advisors for portfolio support.