China Gold Demand Wanes Amid Record Prices

Weak Equities, Currency Drag on Sales

China's gold demand has plummeted in recent months, with sales at record-low levels due to soaring prices for the precious metal. According to the Bank of America, China's gold ETFs have experienced significant inflows, adding 253 million ounces last year. However, overall consumption of gold has declined, dropping by approximately 3% to 4,899 tons.

Economic Factors Impacting Demand

The decline in gold demand in China is attributed to several economic factors. Weak equity markets, coupled with a weakening local currency, have discouraged investors from purchasing gold as a hedge against inflation. Additionally, decreasing bond yields have reduced the appeal of gold as an alternative investment option.

Outlook for Gold Demand

Analysts estimate that a 10% drop in the Shanghai gold price could boost physical gold demand in China by 16%. Despite current challenges, China's long-term demand for gold remains strong, backed by the country's solid economic fundamentals and cultural affinity for the precious metal. The central bank has also been consistently increasing its gold reserves, adding 18 straight months of purchases in April.

Therefore, while China's gold demand may have softened in the face of record-high prices, the long-term outlook remains positive. As economic conditions improve and market sentiment turns favorable, demand for gold in China is expected to rebound.