SHANGHAI – The jitters affecting the world’s second-biggest economy are starting to feed through into China’s gold market.
A surge in purchases by Chinese residents, driven by pent-up demand after three years of Covid-19 pandemic restrictions and optimism that the economy will quickly rebound, is starting to slow – yet another sign that the recovery is losing momentum.
China vies with India as the world’s biggest consumer of gold bars, coins and jewellery. Its central bank has also been a recent buyer, adding to its reserves for seven straight months after a three-year pause.
Although most gold trades as a financial asset – notably as a haven for investors during risky times or as a hedge against inflation – China’s physical demand for the precious metal has helped underpin its 2023 ascent to over US$2,000 an ounce.
The rapid expansion in retail sales of gold and silver jewellery looks to have topped out, rising 24 per cent year on year in May to 26.6 billion yuan (S$4.98 billion). That is slower than the 44 per cent and 37 per cent growth recorded in the previous two months. The same period in 2022 included the extended lockdown of Shanghai, when demand for goods and services cratered across the economy.
A key demand indicator for the precious metal suggests a further weakening in June. From a premium of US$44.20 an ounce in March, the Shanghai gold price is now trading at a discount to the international market, according to the World Gold Council.
“Residents are pretty cautious in spending cash right now amid various uncertainties,” said Mr Jiang Shu, general manager of the precious metals department at Shanghai Shandong Gold Industrial Development.
“We may not see a rapid surge in purchases again without a slump in gold prices.”
The issues that have kept international prices close to record levels are still in play: war in Ukraine, tensions between Washington and Beijing, and inflation and recession fears across the globe. At the same time, domestic factors such as weak markets for other investments including stocks and property could help support demand.
Although China’s buying spree has slowed, retail sales should stay elevated in the near term as gold remains a sound investment while inflation concerns persist, particularly in the United States, said analyst Zhang Ting from Sichuan Tianfu Bank.
Further purchases from the People’s Bank of China could also offset declines in retail sales, said Mr Jiang. BLOOMBERG
