China’s Gold Market Sees Strong Price Growth and ETF Inflows in February

China’s gold market experienced significant price growth and record inflows into gold exchange-traded funds (ETFs) throughout February, signaling a robust investment landscape amidst a recovery in jewelry demand. According to Ray Jia, Research Head for China at the World Gold Council (WGC), the momentum behind gold prices reflects various economic factors playing out in the domestic market and beyond.

Gold Price Trends in February

Gold prices continued to rise internationally during February, but the increase was particularly pronounced in China. Jia highlighted that the gold price’s relative strength in the Chinese Yuan (RMB) compared to its U.S. Dollar (USD) equivalent was influenced by a 0.5% depreciation in the RMB during the month. Although gold prices saw a dip in the latter half of February, the first half of the month saw remarkable price peaks, with the gold price refreshing records on 11 occasions in USD and six times in RMB.

“Our analysis shows that market momentum, generally lowering yields, and a weaker dollar drove gold higher,” Jia remarked. However, he cautioned that while prices surged, wholesale demand showed a seasonal decline, with gold withdrawals from the Shanghai Gold Exchange (SGE) falling 28% month-over-month to 90 tonnes. This pattern, he noted, aligns with historical data, which typically sees a decline in February after the Lunar New Year holiday.

Wholesale Market Trends

Despite the seasonal fluctuations, Jia pointed out that the wholesale market is showing signs of weakness year-over-year, with a significant decline in annual terms. The soaring local gold price has curbed jewelry demand in tonnage, leading to stagnated buying activities among manufacturers who significantly rely on SGE withdrawals.

“The investment demand for gold remained robust, driven by heightened interest as prices rose, but it was not sufficient to balance out the weakness in the jewelry sector,” Jia added, as total withdrawals fell by 29% year-over-year in February.

Investment Demand and Record ETF Inflows

On the investment front, the figures were striking, with Chinese gold ETFs recording their largest-ever monthly inflows. Jia noted that in February, gold ETFs witnessed an influx of RMB14 billion (approximately US$1.9 billion), pushing total Assets Under Management (AUM) to RMB89 billion (around US$12 billion), marking another month-end peak.

Moreover, total ETF holdings surged by 21 tonnes to reach a record high of 131 tonnes. The impressive performance of local gold prices, particularly following the market reopen after the Chinese New Year, garnered significant investor attention. Concerns surrounding geopolitical uncertainty, particularly in relation to the Trump administration’s trade policies, may have also spurred safe-haven flows into gold investments.

Central Bank Purchases and Future Outlook

China’s central bank has continued to bolster its gold reserves, extending its gold purchases for the fourth consecutive month with a reported purchase of 5 tonnes in February. This brings China’s official gold reserves to 2,290 tonnes, the highest on record, which accounts for 5.9% of total foreign exchange reserves. In the first two months of 2025, gold reserves have increased by a total of 10 tonnes.

Looking toward the future, the WGC is optimistic about the recovery of China’s gold market, supported by signs of economic improvement. Key indicators, such as manufacturing and composite purchasing managers’ indices (PMIs), exceeded market consensus expectations in February. Additionally, significant new loans in January reflected effective policy stimulus aimed at boosting credit.

“Consumer confidence also showed a slight uptick in January, although the sustainability of this trend remains to be seen,” Jia stated. With an official growth target of 5% for 2025 and enhanced fiscal and monetary policies—including a higher deficit-to-GDP ratio—there is potential for stabilization in the gold jewelry sector if the bullish trend in gold prices reaffirms and the economic outlook continues to brighten.

Conclusion

In conclusion, China’s gold market in February highlights a dichotomy between investment demand and jewelry consumption. While the allure of gold as an investment remains strong, particularly given geopolitical uncertainties, the jewelry sector faces challenges due to soaring gold prices. The WGC foresees that if the gold price stabilizes and economic conditions improve further, the jewelry market may well see a rebound, reflecting broader economic recovery trends.