World Gold Council: Rising gold prices and improving market sentiment drive more active gold futures trading

The Zhitong Finance App learned that in August, the World Gold Council published an article stating that in August, the price of gold rose sharply. The London midday gold price in US dollars and the Shanghai midday benchmark gold price in RMB rose 13% and 8.4%, respectively. However, the upward trend waned in early September. In August, total gold ETF holdings in the Chinese market increased by 11 tons to 293 tons. At the beginning of September, gold ETFs continued to flow in. Rising gold prices and improving market sentiment have made gold futures trading more active. The anti-seasonal decline in gold shipments from the Shanghai Gold Exchange reflects the cooling demand for gold bars and coins and the continued weakness of the jewellery industry. In August, the People's Bank of China increased its gold holdings by 20.2 tons, making it the largest monthly purchase since October 2023. This is also the 22nd month in a row that it has increased its gold holdings.

Gold prices rebounded in August, and gold prices recorded the strongest monthly performance since January

The short-term gold price performance attribution model shows that trend momentum is the main factor driving the rebound in gold prices. Among them, the excellent performance of gold ETFs and futures holdings provided important support; against the backdrop of changes in the Fed's interest rate expectations and the worsening US debt problem, investors have increased their efforts to buy gold.

The performance of gold prices denominated in RMB is relatively weak. This is mainly due to the appreciation of RMB and weak momentum in domestic investment trends.

At the beginning of September, with hawkish remarks from the Federal Reserve Chairman and strong US labor market data, investors' expectations that the Fed would raise interest rates in the same month heated up again. The upward momentum of gold has weakened, but the weakening dollar has provided some support for gold prices.

Continued inflow of gold ETFs in the Chinese market

In August, total gold ETF holdings in the Chinese market increased by 11 tons to 293 tons. The total asset management scale (AUM) of gold ETFs in the Chinese market increased by US$10 billion to RMB 282 billion. The main driving factors are: domestic gold prices stabilized and rebounded, Chinese treasury bond yields declined further, and the People's Bank of China continued to announce an increase in gold holdings.

At the beginning of September, as treasury bond yields continued to decline and stock market performance was sluggish, Chinese investors continued to increase their holdings of gold ETFs.

Gold futures trading volume and net long positions increased simultaneously

In August, the activity of the gold futures market increased. The average daily gold futures trading volume on the Shanghai Futures Exchange surged 36% month-on-month to 396 tons, and the net long holdings (subject to data restrictions) of the top 20 gold futures participants on the Shanghai Futures Exchange increased by 37 tons to 154 tons. Both reflect an improvement in market sentiment as gold prices rebounded during the month.

Gold shipments from the Shanghai Gold Exchange declined further

In August, gold shipments from the Shanghai Gold Exchange fell 22% month-on-month and 27% year-on-year to 62 tons. The reason for the anti-seasonal decline is that overall gold jewellery demand is still sluggish, mainly due to the cooling of gold bar and coin investment.

Although the price of gold closed higher at the end of August, some long-term physical gold investors chose to wait and see until the price of gold showed a more clear upward trend, while others continued to look for better opportunities to enter the market.

Demand for jewellery remained sluggish year over year as the price of gold was significantly higher compared to last year and the additional VAT burden continued to suppress consumption. However, in order to welcome new product launches and various exhibitions, which are usually held in September, demand from jewelry manufacturers to replenish stocks has rebounded.

Anecdotal evidence shows that when gold prices began to rise in early August, manufacturers stepped up their replenishment efforts, but as gold price fluctuations intensified in the latter part of the month, they became more cautious. At the same time, the trend of product weight reduction continues to drive the jewellery industry, and upstream physical demand in tonnage terms has declined.

The People's Bank of China accelerates the pace of gold purchases

In August, the People's Bank of China announced an increase in its gold holdings by 20.2 tons, making it the largest monthly purchase since October 2023. By the end of August, China's official gold reserves had increased to 2,387 tons for 22 consecutive months, 9% of total foreign exchange reserves, up from 8% in July. This shows that in the context of rising geopolitical uncertainty, central banks are focusing on diversifying reserves and enhancing reserve resilience.

Gold imports declined in July

In July, the Chinese market imported 118 tons of gold, down 34 tons from June. The main reason for the month-on-month decline was the weakening of upstream physical gold demand during the month. On a year-on-year basis, China's net gold imports increased by 34%. The World Gold Council believes that despite weak demand for jewellery, compared with last year, domestic and foreign gold price premiums were higher in July and demand for gold bars remained strong. Together, these factors contributed to the year-on-year increase in gold imports.

Looking forward to the future, gold price trends will still be a key factor affecting gold bar and coin investment, and the decline in Chinese treasury bond yields and stock market uncertainty may provide continued support for related demand. Meanwhile, jewellery demand is expected to receive a seasonal boost. Because, judging from historical rules, retailers usually increase their replenishment efforts before the peak season in the fourth quarter.