China’s Gold Market: Strong Performance Amid Economic Recovery

February marked a significant month for China’s gold market, characterized by strong price growth and unprecedented inflows into exchange-traded funds (ETFs), according to Ray Jia, Research Head for China at the World Gold Council (WGC). These developments point towards a recovery in jewelry demand, fueled by an improving domestic economic outlook.

Gold Prices Flourish

Jia noted that gold prices continued their ascent internationally in February, showcasing even sharper gains domestically. The outperformance of gold priced in Renminbi (RMB), compared to its US dollar (USD) counterpart, was primarily influenced by a 0.5% depreciation of the local currency during the same period. Gold prices reached record highs, with benchmarks being refreshed multiple times, marking new peaks in both USD and RMB on various occasions throughout the month.

Although gold prices did experience some adjustments in the latter half of February, the overall momentum remained strong, buoyed by generally declining yields and a weaker dollar, which contributed to the bullish sentiment surrounding gold as a safe-haven asset.

Seasonal Demand Dynamics

Despite the robust price environment, wholesale demand for gold saw a typical seasonal decline. February’s gold withdrawals from the Shanghai Gold Exchange (SGE) fell by 28% month-over-month to 90 tonnes. This reduction aligns with historical trends, as February usually witnesses a decrease in demand due to post-Chinese New Year adjustments by wholesalers and manufacturers. Since 2013, the average decline in monthly gold demand for February has been 41% – with 2023 serving as an anomaly due to pent-up demand resulting from COVID-19 restrictions.

Nonetheless, Jia noted that while seasonal factors are at play, the wholesale market also appears weak on a year-over-year basis. The soaring local gold prices have contributed to diminished demand for gold jewelry, leading to lower stocking activities among manufacturers, who constitute a substantial portion of SGE withdrawals. Consequently, February’s total withdrawals reflected a substantial year-over-year decline of 29%.

Investment Demand Surges

On the investment front, February delivered unprecedented numbers, with Chinese gold ETFs experiencing record inflows. Jia reported that gold ETFs in China added RMB 14 billion (approximately USD 1.9 billion) for the month, the highest monthly inflow recorded. This surge in investment pushed the total assets under management (AUM) of Chinese gold ETFs to RMB 89 billion (around USD 12 billion), marking another month-end peak.

Total ETF holdings rose by 21 tonnes to reach 131 tonnes, another record high. The strong performance of the local gold price, coupled with rising investor interest noted post-Chinese New Year, contributed to these significant inflows, as did market concerns regarding the Trump administration’s trade policies, which likely prompted further safe-haven buying.

China’s Central Bank Activity

Adding to the bullish narrative, China’s central bank continued its sovereign gold purchases for the fourth consecutive month, acquiring an additional five tonnes in February. The People’s Bank of China (PBoC) reported that its official gold holdings reached 2,290 tonnes at the end of the month—the highest on record—accounting for 5.9% of total foreign exchange reserves. Notably, during the early months of 2025, Chinese gold reserves increased by a total of 10 tonnes.

Outlook for the Gold Market

The WGC posits that China’s economic growth is indicating signs of improvement, which bodes well for the previously underperforming sectors of the gold market. In February, both official manufacturing and composite Purchasing Managers’ Indexes (PMIs) surpassed market expectations, suggesting an expansion in economic activity. Furthermore, there was a remarkable surge in new loans during January, indicating a robust policy stimulus aimed at bolstering credit and facilitating bank loan front-loading assignments.

Moreover, January demonstrated a tick-up in consumer confidence, a critical metric to watch as its stability is vital for future demand within the gold market. The recent “two sessions” also disclosed an official growth target of 5% for 2025, complemented by enhanced fiscal and monetary policy supports, including a proposed higher deficit-to-GDP ratio of 4% and additional interest rate cuts.

Conclusion

Looking ahead, if gold prices stabilize and the economic landscape continues to improve, it’s reasonable to predict a corresponding stabilization within the gold jewelry sector. Investment demand for gold is also likely to remain strong as investors navigate the dual forces of anticipated price appreciation and enduring uncertainties in US trade policies. With these factors in play, China’s gold market is poised for resilience in what promises to be a complex, evolving economic environment.