China’s gold market rebounds

According to data compiled by the World Gold Council, Chinese gold-backed ETF holdings stood at 51.3 tonnes as of March, up by 4.6 tonnes in the month. For the first quarter, ETF holdings increased by approximately 8 tonnes.

The growth in investors’ strategic allocation to gold ETFs was supported by concerns for China’s economic growth and weaknesses in risk assets following the covid-19 outbreak in January, the Council said.

Au(T+D) trading volumes in March set a new record, reaching 3,935 tonnes at an average of $9 billion per day, its highest ever level. Safe haven demand amid sell-offs in Chinese stock and commodity markets following the covid-19 outbreak globally was the main contributor fueling the high trading volumes, the Council said.

Au9999 trading volumes – usually seen as a proxy for physical gold demand in general – and gold withdrawals from Shanghai Gold Exchange (SGE) both saw notable rebounds in March as most Chinese companies resumed operations.

The Council noted that despite the elevated trading activities, these figures are still below the levels seen in 2019.

Chinese gold ETFs’ asset under management (AUM) also reached an all-time high for the month of March. The highest quarter average local gold price since the SGE’s establishment and the rising safe-haven demand drove Chinese gold-backed ETFs’ AUM to 19 billion renminbi, or $2.7 billion.

WGC research manager Ray Jia said the gold demand in China in March “may have been supported by various stimulus measures,” as with elsewhere in the world.

“These measures include re-opening malls across the country, e-vouchers from the government to boost leisure consumption, jewellery retailers’ efforts in online sales, and promotion and discounts on almost all gold products by these retailers,” Jia said.

In March, higher demand and disruptions in gold-supply chains worldwide due to intensified covid-19 outbreak also resulted in a “significant” premium for gold outside China, the Council added. The Shanghai Gold Benchmark PM was $11/oz cheaper than LBMA Gold Price AM on average, the largest discount since the SGE’s establishment.

Meanwhile, the People’s Bank of China (PBoC) kept its gold reserves unchanged at 1,948 tonnes in March, accounting for 3.3% of its total reserves.