Chinese investors have launched a large-scale buying spree after international gold prices fell to around $4,010 per ounce. With global gold markets rattled by the prospect of further US interest rate hikes and inflation fears stemming from the Middle East, investors in China are increasingly treating the price decline as a buying opportunity. Analysts say household funds with nowhere else to go are flowing into gold as a prolonged real estate slump and a sharp stock market selloff compound each other.
According to Bloomberg, Chinese household demand for gold has risen sharply over the past two months. The trend reflects waning interest in mainland Chinese equities alongside falling gold prices, which have together driven greater attention toward physical gold and gold accumulation products.
Analysts say this Chinese buying has also played a part in keeping international gold prices near the $4,000-per-ounce level. Even as concerns about monetary tightening in major economies weigh on the market, bargain-hunting by Chinese investors has absorbed some of the downward pressure on prices.
The intensity of Chinese gold buying is visible in trading volumes at the Shanghai Gold Exchange. The exchange's benchmark physical gold contract, Au99.99, recorded weekly trading volume of 43 million lots last week — equivalent to roughly 430 tonnes of gold, the highest since April.
Au99.99 is a contract for gold with 99.99 percent purity. Investors must pay the full transaction amount upfront, and physical delivery is required.
Unlike leveraged investments that amplify contract size using only a margin deposit, the contract is considered a reliable indicator of physical gold demand. The 430 tonnes figure represents total trading volume for the contract, however, and does not reflect the net amount of gold purchased by Chinese households during the period.
A clear pattern has also emerged in which buying intensifies as prices fall.
Wu Zijie, an analyst at China Jinrui Futures, told Bloomberg that demand for gold within China has shown an increasingly strong tendency to move in the opposite direction from prices.
He said demand during China's National Day holiday in October was also positive, adding that the recent price decline had offered long-term investors an attractive entry point.
Gold purchases through banks in China picked up further last week as prices fell.
One product drawing particular attention is the gold accumulation plan, which allows investors to build up gold holdings gradually with small amounts of money. Customers deposit a set amount with a bank, which then purchases the equivalent weight in gold on their behalf — enabling participation in gold investment without the lump sum needed to buy a full gold bar.
Officials at major Chinese banks said purchases through gold accumulation plans and similar products in the first nine months of this year have already surpassed the full-year total for last year.
They said the pace of buying accelerated further last week as gold prices fell again.
Analysts say interest in gold investment has moved beyond seasonal holiday spending and is spreading as a broader approach to household asset management.
China's stock market has shed about $2.4 trillion in market capitalization since its peak in May, according to Bloomberg. The prolonged slump in real estate has eroded the appeal of housing as an investment, while government bond yields have fallen to record lows, leaving households with fewer options for stable returns.
The backdrop to Chinese households' aggressive gold buying is underperformance across other asset classes. With real estate losing its investment appeal after years of decline and government bond yields hitting historic lows, the range of investments offering reliable returns has narrowed considerably.
China's stock market has added to the pressure. Investors who have suffered losses from falling share prices are moving to reduce their exposure to riskier assets and shift funds into relatively safer alternatives.
Gold pays no interest, but it serves as a diversification tool when financial market volatility rises or returns on conventional investments deteriorate. With both the stock market and real estate slumping simultaneously in China, gold has emerged as the leading alternative investment destination.
The World Gold Council's China gold market report, released Oct. 15, confirms the trend. Chinese gold ETF holdings rose by 11 tonnes in September from the previous month — a third consecutive monthly increase — bringing total holdings to 304 tonnes, a record high at month-end.
Gold ETF holdings for the third quarter as a whole grew by 27 tonnes, with net inflows for the period totaling approximately $3.9 billion.
The World Gold Council said the decline in China's stock market and the drop in government bond yields had stimulated investor demand for asset diversification.
Buying by the People's Bank of China, the country's central bank, is also shaping investor sentiment. The central bank purchased 23 tonnes of gold in September, the largest monthly purchase since October 2023, bringing China's official gold reserves to 2,410 tonnes. The bank has now bought gold for 23 consecutive months through September, adding 63 tonnes in the third quarter alone.
The central bank's sustained purchases have reinforced household demand for gold investment.
Chinese consumers' expansion of gold investment gained momentum last year. According to People's Bank of China data published in a Shanghai Gold Exchange report in April, Chinese banks sold 2,187 tonnes of gold to individual customers last year — more than three times the volume sold the previous year.
That figure represents the total amount of gold sold by banks to consumers, however, and does not account for gold subsequently resold by customers to financial institutions. Precise net purchase figures for gold accumulation plans are also not generally disclosed.
China's growing gold appetite has become a significant variable in the international gold market. International gold prices have recently faced downward pressure from rising oil prices and inflation concerns tied to military tensions between the United States and Iran.
Rising oil prices heighten inflationary pressure and reinforce expectations that the Federal Reserve may raise interest rates further. Because gold, unlike bonds, pays no interest, higher rates reduce its relative investment appeal.
International gold prices fell below $4,000 per ounce during trading on Friday, hitting their lowest level in more than three months.
In China, however, the price decline has instead served as a catalyst for stronger buying demand.
According to the World Gold Council, gold withdrawals from the Shanghai Gold Exchange totaled 92 tonnes in September, up 48 percent from the previous month. The increase reflected both seasonal demand ahead of the National Day holiday and moves by investors who saw the price dip as a buying opportunity.
Not all segments of Chinese gold consumption are growing, however. Wholesale gold demand in China in the third quarter came to 234 tonnes, down 21 percent from a year earlier. Jewelry consumption has been weak, while interest in gold ETFs and physical investment gold has risen — a shift in the nature of demand.
Bloomberg said Chinese mainland gold buying this year has helped support international gold prices, contributing to keeping the benchmark price largely above $4,000 per ounce.
The key variables that will determine the direction of gold prices going forward include US monetary policy, international oil prices, and the pace of physical gold buying in China. With Chinese gold demand showing a pattern of strengthening during price declines, attention in the global gold market is growing over the scale and durability of Chinese retail investor purchases.
rainbow@heraldcorp.com
