Gold Holds Steady as China’s Demand Diverges in Early August

Gold prices remained remarkably steady over the week, reflecting global economic uncertainties and portfolio diversification strategies. In China, the LBMA Gold Price PM in USD rose modestly by 0.3%, while the Shanghai Benchmark Gold Price PM (SHAUPM) in RMB climbed 0.5% buoyed by a weaker local currency and persistent concerns about inflation. 

On the demand side, wholesale gold withdrawals from the Shanghai Gold Exchange (SGE) edged higher to 93 tonnes in July, a slight seasonal uptick but still below the decade average highlighting ongoing softness in the jewellery sector. 

Investor behavior painted a mixed picture. Chinese gold ETFs experienced outflows totaling RMB 2.4 billion (~US$ 325 million), reducing AUM by approximately 1% to RMB 151 billion, alongside collective holdings falling by 3 tonnes. Despite this, year-to-date inflows remain at record levels, with RMB 61 billion (~US$8.5 billion) added so far. 

Meanwhile, gold futures on the Shanghai Futures Exchange (SHFE) slowed, averaging 242 t/day in July down 18% month-on-month but still above the five-year daily average of two hundred and sixteen tonnes, underpinned by enduring trading engagement. 

China’s central bank continued its gold accumulation, purchasing another 2 tonnes the ninth consecutive month raising official reserves to 2300 tonnes, now representing 6.8% of foreign exchange holdings. 

On the supply front, June gold imports plunged to around 50 tonnes a 45% m/m decline bringing first-half imports to just three hundred and twenty three tonnes, down 62% from 2024 levels. This reflects subdued wholesale demand pressure across the country. 

A seasonal pickup in jewellery demand may arise, but affordability concerns could limit its growth. Investment interest will depend on risk sentiment and the trajectory of gold prices, as robust equity markets may divert flows away from bullion.