The World Gold Council's latest China Gold Market Monthly Commentary reveals that the recent value-added tax adjustment has accelerated consolidation in China's gold jewelry sector, already exerting negative effects on jewelry consumption. The policy may continue weighing on sales in the near term. However, the Council believes this reform will foster healthier industry development by eliminating less competitive retailers, ultimately refocusing the market on jewelry's artistic value and innovation.
In November, gold prices rallied amid growing expectations for a December Fed rate cut. The LBMA Gold Price PM in USD gained 4.5%, while the Shanghai SHAUPM Gold Price in CNY rose 3% (Chart 1). The yuan's appreciation against the dollar and moderating domestic demand capped the latter's advance. Year-to-date returns for CNY- and USD-denominated gold have expanded to 54% and 61% respectively.
*VAT Reform Pressures Upstream Demand* Shanghai Gold Exchange (SGE) withdrawals, a key indicator of China's upstream physical demand, plunged 32% month-over-month to 84 tonnes in November (Chart 2) - the weakest November performance since 2009. Historically, upstream demand typically recovers post-October, but this year saw unusual softness as VAT changes increased jewelry costs, dampening consumer purchases and retailer restocking. In contrast, physical bar sales through SGE members remained stable, though insufficient to offset jewelry weakness. Strong investment demand stems from: 1) jewelry buyers shifting to tax-exempt bars/coins; 2) heightened geopolitical risks and A-share corrections boosting safe-haven demand; 3) gold's sustained rally; and 4) PBOC's ongoing purchases.
*Gold ETF Inflows Accelerate* Chinese gold ETFs attracted ¥16 billion (≈$220m/17t) in November, marking three consecutive months of inflows and far exceeding 2024's monthly average of ¥2.6 billion. Total AUM grew 10% m/m to ¥231 billion (≈$29b), with holdings rising 7% to 244t - setting new records both in value and volume terms (Chart 3). The drivers mirror those supporting physical bar demand.
*Futures Volume Retreats from Highs* SHFE gold futures' average daily volume fell 29% m/m to 461t/day in November amid lower price volatility (Chart 4). Despite the drop, activity remains well above 2024's 302t/day average. The 2025 YTD average of 463t/day significantly exceeds the 2019-2024 mean of 216t/day.
*PBOC Adds to Reserves* The People's Bank of China reported purchasing 0.9t in November (Chart 5), bringing total reserves to 2,305t. YTD additions of 26t have increased gold's share of FX reserves from 5.5% (Dec 2024) to 8.3% (Nov 2025), aided by both buying and price appreciation.
*October Imports Decline* China's net gold imports totaled ~36t in October (Chart 6), down 57t m/m and 43t y/y. The eight-day National Day/Mid-Autumn holiday reduced working days, while negative Shanghai-London spreads during half of November further discouraged imports. Persistent jewelry sector weakness has kept 2025 imports below historical levels.
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