The Chinese Gold Market in the Year of the Ox

Jeremy East; Senior Advisor for Asia, LBMA; Joni Teves, Precious Metals Strategist, UBS; Roland Wang, Managing Director, China, WGC.

LBMA’s webinar this week focused on recent physical gold flows into China over their New Year period and expectations of demand for the coming months. 

Roland and Joni provided a good summary of 2020 market conditions in China, focusing on quarterly gold consumption, the steep discount that existed for the Shanghai/London spot spread and the sharp fall-off in local gold imports.

In comparison, 2021 looks much healthier and Roland noted that key jewellery retailers reported recent holiday sales are 161% higher year-on-year. The economy is strong. Lower gold prices are encouraging buying interest and if China’s gold demand continues, Roland expects the Shanghai/London spread to revert to its average premium range of US$5-6. Some headwinds prevail including real interest rates rising in China and gold jewellery moving towards a light-weight trend — meaning less gold content. But gold remains a strategic diversifier, with seven new ETFs launching in the last year in a market where the Chinese consumer has a very wide choice of physical investment products.

Joni talked about the seasonality of Chinese demand. The growth of GDP and income should support Chinese gold consumption as demand for bars and coins is positively related to savings. The physical market, more broadly, should provide better support to the gold price than it did last year.

Jeremy asked further questions about the threat of ETF liquidation and flows moving from West to East like in 2013, RMB controls, PBoC demand and digital gold. To hear those answers and related discussion watch a recording of the webinar now.

4 March 2021