China’s Gold Demand Strengthens As PBOC Adds to Reserves for 24th Month

At Beijing’s Tianya Jewellery Market, a major gold bazaar in the Chinese capital, saleswoman Zhang Fan has seen more customers over the past few weeks.

“Many people see buying gold as a necessity for weddings, so that is not bound by timing,” Zhang said. “But there is another group of customers – those who feel that the current price is right.” China’s demand for gold has continued to grow as prices fall, with some consumers, investors and the central bank continuing to purchase the metal even as many other parts of the world hold back.

Spot prices stood at around 880 yuan a gram (US$4,101 a troy ounce) on the Shanghai Gold Exchange on Monday, nearly 30 per cent lower than its all-time high in lateJanuary.

While prices have continued to weigh on overall gold jewellery demand, recent pullbacks have coaxed Chinese customers back into stores, with purchases in the third quarter of the year up 30 per cent compared with the previous quarter, according to the World Gold Council.Zhang said gold jewellery had also gained more traction among younger customers as designs had grown more stylish over the past few years.

“It’s an investment that can also be worn,” she said.

Broader Chinese appetite for gold as a form of investment has also gathered momentum, with gold exchange-traded fund (ETF) holdings and demand for gold bars and coins rising in recent months.

Chinese gold ETFs attracted US$784 million in inflows last month, leading regional growth and ranking second globally behind only the United Kingdom, World Gold Council data showed. China was also one of the few markets worldwide where third-quarter demand for physical bars and coins grew year on year. “Weaker domestic equities and falling government bond yields helped support gold’s relative appeal,” the World Gold Council said in a report published last week.

The yield on China’s benchmark 10-year government bond slipped to around 1.58 per cent on Monday – down around 0.1 percentage points from a month ago.

“Continued gold purchases by the [People’s Bank of China] would further boost confidence,” the World Gold Council said, adding that it expected Chinese investor demand to remain robust for the rest of the year.

The People’s Bank of China has emerged as one of the world’s leading central bank buyers of bullion. It added 830,000 troy ounces to its gold reserves last month, according to official data released over the weekend.It was the 24th consecutive month that the central bank had increased its gold holdings, with its drive to diversify its reserves having gathered pace in recent months.

But while global central bank demand for gold remains supportive for gold prices in the long term, the United States Federal Reserve’s hawkish shift and an expected interest rate increase next month would put pressure on gold prices, Goldman Sachs said last week, when it lowered its gold price forecast for the end of the year to $4,150 a troy ounce, down from $4,650.