The price of gold experienced a decline in May against a backdrop of continued high uncertainty in energy markets, with market participants remaining vigilant about inflation risks and elevated interest rate environments.
In the Chinese market during May, gold exchange-traded funds (ETFs) saw an end to their previous eight-month inflow streak. The total assets under management (AUM) for these funds decreased by 5% to 2,890 billion renminbi. Meanwhile, trading demand for gold futures on the Shanghai Futures Exchange (SHFE) remained stable.
Driven by weakening investment demand momentum and persistently soft demand in the gold jewelry market, upstream physical gold demand weakened significantly in May.
In May, the People's Bank of China increased its gold reserves by 10 tonnes, marking the largest single-month purchase since December 2024. This also represents the 19th consecutive month of accumulation. The official gold reserves now stand at 2,332 tonnes, accounting for 9% of the total foreign exchange reserves.
Since the beginning of June, gold prices have initially fallen and then risen amid shifting inflation expectations. However, domestic gold ETFs in China have continued to see minor outflows.
Gold Price Weakness
The price of gold saw a modest retreat in May. The London Bullion Market Association (LBMA) afternoon gold price, denominated in US dollars, fell by 1.4%. The Shanghai afternoon benchmark price (SHAUPM), quoted in renminbi, declined by 2.7%. The strengthening of the renminbi further amplified the downward pressure on domestic gold prices.
Simultaneously, inflation concerns stemming from persistent geopolitical uncertainties in the Middle East pushed up bond yields and the US dollar, becoming a significant factor influencing gold market performance during the month.
Chinese Gold ETFs Shift to Outflows; Futures Trading Steady
In May, Chinese gold ETFs experienced net outflows of 8.2 billion renminbi, marking the first monthly outflow since August 2025.
The total assets under management for gold ETFs decreased by 5% to 2,890 billion renminbi. Affected by both fund outflows and the price correction, the total holdings of Chinese gold ETFs fell by 8.3 tonnes to 293 tonnes.
Reasons for the reduction in gold ETF holdings include the continued strength of the domestic stock market, which diverted investment away from gold, and a lack of clear direction in gold prices.
The average daily trading volume for gold futures on the Shanghai Futures Exchange (SHFE) in May was 301 tonnes, remaining largely consistent with the 307 tonnes per day recorded in April.
Trading activity was somewhat restrained primarily due to domestic gold prices entering a consolidation phase and investors' sustained and growing interest in the local stock market.
Upstream Physical Gold Demand Continues to Decline
Upstream physical gold demand saw a notable drop in May. Gold withdrawals from the Shanghai Gold Exchange (SGE) amounted to 64 tonnes, a decrease of 38% compared to the previous month. Withdrawals were also down 36% year-on-year, representing the weakest May performance since 2010.
This was mainly influenced by seasonal factors: weaker gold prices in May, coupled with strong stock market performance, diminished investors' safe-haven demand for gold investment products. Demand for gold jewelry remained subdued due to pressure on purchasing power and additional taxes. Although there was a slight recovery in jewelry demand as gold prices stabilized in May, jewelry retailers remained cautious about restocking.
Overall, upstream physical gold demand in May was impacted, falling to a multi-year low.
People's Bank of China Increases Gold Purchases
The People's Bank of China's official gold reserves rose by 10 tonnes in May, marking the 19th consecutive month of accumulation and the highest level since December 2024. This brought the official gold reserves to 2,332 tonnes.
Year-to-date, China's official gold reserves have increased by a cumulative 25 tonnes, accounting for 8.9% of foreign exchange reserve assets.
Over the past 19 months, the People's Bank of China has accumulated a total increase of 67 tonnes in its gold reserves.
Gold Imports Continue to Grow in April
In April, China's net gold imports reached 157 tonnes, an increase of 10% month-on-month and 40% year-on-year, marking the highest level since March 2024.
The positive price spread between domestic and international gold prices persisted in April, continuing to support gold imports.
Future Outlook
Seasonal patterns suggest that demand in the gold jewelry segment may stabilize in the coming months. Concurrently, the trend of stabilizing gold prices is also expected to stimulate some upstream restocking demand. However, if the decline in gold prices intensifies further, jewelry retailers may maintain a wait-and-see stance.
On the investment front, the weakening momentum of gold price increases may further dampen demand for physical gold investment.
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