The price of gold experienced a decline in May, as market participants remained cautious about inflation risks and the high-interest-rate environment against a backdrop of persistent energy market uncertainty.
During May, gold exchange-traded funds (ETFs) in the Chinese market saw outflows, ending an eight-month streak of net inflows. The total assets under management (AUM) for these funds decreased by 5% to 289 billion yuan. Meanwhile, trading demand for gold futures on the Shanghai Futures Exchange (SHFE) remained stable.
Upstream physical gold demand weakened significantly in May, influenced by diminished investment momentum and continued softness in the gold jewelry market.
In contrast, the People's Bank of China (PBOC) increased its gold reserves by 10 tonnes during the month. This marks the largest single-month purchase since December 2024 and represents the 19th consecutive month of accumulation, bringing the official gold reserves to 2,332 tonnes, which accounts for 9% of the total foreign exchange reserves.
Since the beginning of June, gold prices have fluctuated with changing inflation expectations, initially falling before rising again. However, domestic gold ETFs in China have continued to experience minor outflows.
Gold Price Performance in May
The price of gold weakened in May. The London Bullion Market Association (LBMA) afternoon gold price, denominated in US dollars, fell by 1.4%. The Shanghai afternoon benchmark gold price (SHAUPM), denominated in Chinese yuan, dropped by 2.7%, with a stronger yuan further amplifying the downward pressure on domestic gold prices.
Simultaneously, inflation concerns stemming from ongoing uncertainties in the Middle East pushed up bond yields and strengthened the US dollar, becoming a significant factor affecting the gold market's performance for the month.
Shift in Chinese Gold ETF Flows and Stable Futures Trading
In May, Chinese gold ETFs recorded a net outflow of 8.2 billion yuan, the first monthly outflow since August 2025. The total AUM fell by 5% to 289 billion yuan. Due to the combined effect of fund outflows and the gold price correction, the total holdings of Chinese gold ETFs decreased by 8.3 tonnes to 293 tonnes.
The reduction in ETF holdings is attributed to the sustained strength of the domestic stock market, which diverted investment away from gold, and a lack of clear directional momentum in gold prices.
The average daily trading volume for gold futures on the Shanghai Futures Exchange in May was 301 tonnes, essentially flat compared to April's 307 tonnes per day. The subdued trading activity was primarily due to the domestic gold price entering a consolidation phase and investors' growing interest in the local equity market.
Continued Decline in Upstream Physical Gold Demand
Upstream physical gold demand saw a notable drop in May. Gold withdrawals from the Shanghai Gold Exchange (SGE) totaled 64 tonnes, a decrease of 38% month-on-month and 36% year-on-year, marking the weakest performance for May since 2010.
This decline was influenced by seasonal factors: weaker gold prices in May, coupled with strong stock market performance, reduced investors' safe-haven demand for gold investment products. Demand for gold jewelry remained sluggish due to purchasing power pressures and additional taxes. Although jewelry demand showed slight signs of recovery as gold prices stabilized, jewelers remained cautious about restocking.
Overall, upstream physical gold demand in May was impacted, falling to a multi-year low.
Increased Gold Purchases by the Central Bank
The People's Bank of China added 10 tonnes to its official gold reserves in May, achieving a 19th consecutive month of increases and marking the highest monthly purchase volume 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 PBOC has accumulated a total of 67 tonnes.
Continued Growth in Gold Imports for April
In April, China's net gold imports reached 157 tonnes, an increase of 10% month-on-month and 40% year-on-year, representing the highest level since March 2024. A positive price spread between domestic and international gold continued to support imports during the month.
Outlook for the Market
Seasonal patterns suggest that demand in the gold jewelry sector may stabilize in the coming months. Concurrently, a trend of stabilizing gold prices could also stimulate some upstream restocking demand. However, if the decline in gold prices intensifies further, jewelers may maintain a wait-and-see approach.
On the investment front, the weakening momentum in gold price appreciation may further dampen demand for physical gold investment products.
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