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China’s gold consumption up amid economic and geopolitical uncertainities

Gold prices continued to rise in May despite political and economic uncertainties. Deteriorated U.S. and China relationship threatened the phase one trade deal between the two countries. SHAUPM in RMB and the LBMA Gold Price AM  in USD were up by 3.03% and 3.43% respectively in May.

Gold outperforming despite the headwinds

Au(T+ D)’s trading volumes registered 1,496t in May. It is 24% lower than in April. The main reason for its decline was due to a drop in volatility in May. Despite the headwinds, the trading volumes in  May were still higher due to gold’s outperformance of other major assets. It was around 17 % on a y-o-y basis.

Gold-backed ETF holdings

Chinese gold-backed ETF holdings stood at 57.7t in May. Strategic investors are lured to gold ETFs amid escalating economic and geopolitical uncertainties and bullish gold price momentum. Second, ICBC gold ETF and First Seafront Gold ETF were listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock  Exchange in May adding another 2.2t to china’s gold ETFs total holdings. Chinese gold ETF investors’ choices further expanded to seven funds, as china’s AMC Gold ETF was also listed at the SSE.

Gold’s wholesale demand fell in May

Lack of retailers’ inventory replenishment and weak gold consumption season in June contributed to lower wholesale gold demand in May. Au9999’s trading volumes and gold withdrawals from SGE were 243t and 69t respectively in May.

Pandemic impacted consumers’ wallet

According to local jeweler manufacturers, despite shopping festivals and promotions, the pandemic’s impacted consumers’ wallets, lowered retailers’ sales expectations. In June low replenishment activities of jewelry retailers’ further clamped down the wholesale gold demand in May. Major cities in China launched various holiday shopping festivals in May to boost retail consumption. For example, China’s Gold Jewellery Shanghai stores offered discounts of up to 20 % on 24K gold products.

The decline in gold, silver, diamond, and gems retail sales

According to the Bureau of Statistics, the y-o-y decline in gold, silver, diamond, and gem retail sales narrowed to -3.9% from -12% in April.

Reopening of gold supply chain outside of china

Companies in the gold chain supply reopened with the gradual easing of lockdown measures. The reopening relieved the supply pressure in the western market to some extent. The reopening of the gold supply chain further contributing to Chinese local gold price discount ‘s contraction.

PBoC’s gold reserves in May

At the end of May, the PBoC’s foreign reserves stood at the US $ 3, 102 bn. A  0.3 % rise m-o-m according to the state administration of Foreign  Exchange. The PBoC’s gold reserve remained intact at 1,948t since September 2019 making up 3.4% of total reserves.



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