China's Gold Investment Soars in Q2 Amidst Global Trends

China's investment sentiment towards gold saw a significant uptick in the second quarter of this year, with expectations of further increases in investor interest for this safe-haven asset, according to the World Gold Council (WGC).

Record High Gold ETF Inflows

Gold exchange-traded funds (ETFs) in China recorded inflows of approximately 14 billion yuan ($2 billion) or 25 metric tons in Q2, marking a record high. The first half of the year saw continuous inflows into Chinese gold ETFs, with holdings and assets under management surging by 50% and 77%, respectively. This growth was largely driven by rising gold prices.

Surge in Gold Bars and Coins

Investment in gold bars and coins reached 80 tons in the second quarter, up 68% year-on-year, representing the strongest Q2 performance since 2013. The demand for wealth preservation amid rising gold prices boosted total investment in gold bars and coins to 190 tons in the first half of the year, a significant 65% increase compared to the same period last year.

Wang Lixin, CEO of the World Gold Council (China), expressed cautious optimism about the demand for physical gold in the latter half of the year.

"With domestic interest rates declining and potential pressure on local assets, there is a likelihood of increased demand for safe-haven investments. However, uncertainties in gold price trends could temper demand for bars and coins later this year," Wang noted.

Decline in Gold Jewelry Demand

Conversely, demand for gold jewelry in China hit a second-quarter low not seen since 2009, totaling 86 tons, affected by high gold prices and slowing economic growth. The first half saw jewelry consumption drop by 18% year-on-year to 270 tons. Seasonal factors may spur a slight increase in domestic demand for gold jewelry in the second half, Wang added.

Global Gold Demand and Prices

Globally, gold demand in the second quarter reached a record high of 1,258 tons, a 4% year-on-year increase, driving prices upward. The average gold price for the quarter was $2,338 per ounce, an 18% increase year-on-year, peaking at $2,427 per ounce in May.

Central Bank Reserves and Technological Use

Global central banks increased their gold reserves by 184 tons in Q2, a 6% rise year-on-year, though slower than the previous quarter. Despite China's central bank maintaining its gold reserves at 2,264 tons in May and June after 18 consecutive months of increases, John Reade, chief market strategist at the WGC, indicated that global central banks are expected to continue increasing their gold holdings over the next 12 months.

Gold used in technology jumped 11% year-on-year in the first half, driven by the ongoing AI trend, according to the WGC.

Retail Gold Bar and Coin Investment

Global retail investment in gold bars and coins dropped by 5% to 261 tons in the second quarter, primarily due to weak demand in Western markets. Record gold prices also impacted second-quarter jewelry consumption globally, with volumes falling 19% year-on-year to a four-year low of 391 tons. Additionally, there was a minor 7-ton decline in global gold ETF holdings in Q2, reported the WGC.