Greed & Fear: Why is China’s appetite for gold waning? Chris Wood explains

China, traditionally one of Asia’s biggest consumers of gold alongside India, appears to be turning its back on the yellow metal, according to Christopher Wood, Global Head of Equity Strategy at Jefferies. In his latest "Greed & Fear" report, Wood outlines the signs of weakening Chinese demand, reflecting a shift that could impact global gold markets.

The recent behavior of gold prices in Shanghai, dropping from a premium of $63/ounce (oz) in mid-June to a $12/oz discount last week, marks a significant change. This is the first discount since June 2023 and the largest since early May 2023, although it has since rebounded to a $13/oz premium. Such fluctuations suggest a weakening demand for gold in China, observed Wood.

Further evidence of this weakening demand came from quarterly data released by Hong Kong-quoted Chow Tai Fook, a retailer of gold and jewellery. The retailer reported a 20 percent year-on-year (YoY) decline in retail sales value for Q1-FY25 ended June 2024, with same-store sales (SSS) plummeting by 26 percent YoY in Mainland China and by 31 percent YoY in Hong Kong/Macau.

Wood also highlighted additional data showing declining Chinese consumer demand for gold. According to the National Bureau of Statistics, the retail sales value of gold, silver, and jewellery at enterprises above a designated size fell by 3.7 percent YoY in June, following an 11 percent YoY decline in May. For the first half of 2024 (H1-CY24), the retail sales value saw only a marginal increase of 0.2 percent YoY to Rmb172.5 billion, compared to a 13.3 percent YoY increase in 2013.

China's gold imports also plunged dramatically, dropping 58 percent month-on-month (MoM) and 40 percent YoY to 58.9 tonnes in June, the lowest level since May 2022. Wood attributes these declines to Chinese consumers' resistance to rising gold prices in renminbi terms.

The World Gold Council (WGC) reported a 6 percent YoY drop in gold demand for jewellery in Mainland China during the first quarter of 2024 (Q1-CY24), down to 184.2 tonnes from 195.6 tonnes. This decline in jewellery demand is linked to the sharp upward trend in gold prices over the past 12–18 months.

Global central banks' demand has been a significant driver, accounting for at least 10 percent of gold’s performance in 2023 and around 5 percent in 2024. Central banks added 1,037 tonnes of gold in 2023, the second-highest annual purchase in history, following a record 1,082 tonnes in 2022.

The declining demand for gold in China, a major consumer, presents a significant concern for global gold markets. As one of the world's largest consumers of gold, China's reduced appetite might influence global gold prices and market dynamics. Christopher Wood's observations point to a potential shift in consumer behavior driven by rising prices and economic factors. As China scales back its gold consumption, the broader market dynamics could see a shift, investors and market watchers will need to keep a close eye on these trends to navigate the evolving landscape of gold demand and supply.

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