"Better than stocks and real estate": Chinese investors rush in and snap up 430 metric tons of 'this' in a week

Gold Emerges as an Alternative Investment Amid Weak Stock and Property Markets
430 Metric Tons Traded on the Shanghai Gold Exchange in One Week

As international gold prices fell below $4,000 an ounce, Chinese investors began buying instead. With sluggish stock and property markets limiting their investment options, they are using the price decline as an opportunity to buy. On the Shanghai Gold Exchange, China’s largest spot gold market, weekly trading volume for a benchmark product surged to about 430 metric tons. Investment through gold savings plans and exchange-traded funds (ETFs) is also expanding. As concerns about U.S. monetary tightening weigh on international gold prices, Chinese demand is emerging as a factor that could absorb some of the downward pressure.

A panoramic view of Shanghai, China. Shanghai Municipal Administration of Culture and Tourism.

According to Bloomberg and other media outlets on Oct. 27 local time, last week’s trading volume for Au99.99, a spot product traded on the Shanghai Gold Exchange (SGE) with a purity of 99.99%, totaled 43 million lots. That is equivalent to about 430 metric tons of gold, the highest level since April.

Au99.99 is a spot product for which the full transaction amount is paid upfront, and is used as an indicator of trading activity in the physical gold market. However, the 430 metric tons represents the product’s total trading volume and does not mean that Chinese individual investors were net buyers of that amount of gold over the same period.

Bank savings plans that let customers buy gold in small amounts have also gained popularity. Customers pay in a set amount and accumulate the corresponding quantity of gold, allowing investors without enough money to buy a gold bar outright to participate. According to officials at major Chinese banks, purchases through gold savings plans and similar products from January to September this year had already exceeded the full-year total for last year, and buying accelerated further after gold prices fell again last week.

According to data from the People’s Bank of China cited in a report released by the Shanghai Gold Exchange last April, Chinese banks sold 2,187 metric tons of gold to individual customers last year, more than three times the previous year’s amount.

Money moves into gold as stocks and property languish

The increase in Chinese investors’ gold purchases coincides with weakness in other asset markets. According to Bloomberg, Chinese stocks have lost about $2.4 trillion in market capitalization since their peak in May. That is equivalent to about 3,185 trillion won. Investment conditions in the stock market have deteriorated, with the benchmark CSI 300 recently entering bear-market territory.

As the property market slump drags on and yields on five-year government bonds have fallen to record lows, investors have fewer alternatives to choose from. With potential returns from stocks and property weakening and bond yields also low, demand for gold as a way to diversify assets appears to be growing.

Because gold pays no interest, rising interest rates can make it less attractive relative to assets that offer interest income, such as bonds. Even so, the expansion of gold demand in China is difficult to explain based on interest-rate expectations alone. One interpretation is that gold is drawing attention as an alternative investment amid weakness in domestic asset markets and a price correction.

People’s Bank continues buying...official holdings reach 2,410 metric tons

The People’s Bank of China, the country’s central bank, is also continuing to buy gold. According to the World Gold Council, the bank added 23 metric tons of gold in September, the largest monthly purchase since October 2023. China’s official gold holdings consequently rose to 2,410 metric tons, marking 23 consecutive months of purchases through September. Its total purchases in the third quarter of this year amounted to 63 metric tons.

Gold bar file photo.

Activity in the physical market continued as well. According to the World Gold Council, gold withdrawals from the Shanghai Gold Exchange totaled 92 metric tons in September, up 48% from the previous month. The increase appears to reflect both seasonal demand ahead of the National Day holiday and buying in response to lower prices.

Monetary policy in focus...attention turns to whether Chinese buying will continue

International gold prices have recently come under downward pressure amid shifting expectations for U.S. monetary policy. Rising oil prices following military clashes between the United States and Iran have heightened inflation concerns, bringing the possibility of further interest rate hikes by the Federal Reserve (Fed) into focus.

Because gold pays no interest, rising rates can make it less attractive as an investment compared with assets that provide interest income, such as bonds. On Oct. 23, international gold prices fell below $4,000 an ounce during intraday trading, reaching their lowest level in more than three months. Prices have fallen about 7.7% so far this year.

Even in this environment, bargain buying in China is seen as a factor supporting international gold prices. Bloomberg reported that steady purchases in mainland China have partly eased downward pressure on prices and helped gold hold near $4,000 an ounce. However, it remains uncertain whether Chinese demand can offset macroeconomic factors such as U.S. interest-rate expectations and international oil prices, even if it supports gold prices.

This content was produced with the assistance of AI translation services.