According to a report released by the World Gold Council, Chinese gold ETFs achieved growth for the third consecutive month, with inflows of RMB 11 billion (approximately USD 1.6 billion) in September.
However, the decline in gold prices during the month offset the growth brought by fund inflows.
The total assets under management (AUM) of Chinese gold ETFs still fell 2% to RMB 276 billion (approximately USD 41 billion), while total holdings increased by 11 tonnes to 304 tonnes, setting a record month-end high.
In the third quarter, Chinese gold ETFs attracted RMB 27 billion (approximately USD 3.9 billion) in inflows, driving a 13% increase in quarterly AUM and a rise of 27 tonnes in total holdings.
Key drivers
A sharp decline in domestic stock markets prompted investors to further seek portfolio diversification, boosting demand for gold ETFs.
Chinese government bond yields continued to decline, lowering the opportunity cost of holding gold and providing support for demand.
The People's Bank of China continued to announce gold purchases, further lifting investor interest in gold ETFs.
A notable point
Strong inflows in the third quarter offset outflows in the second quarter, putting Chinese gold ETFs on track for a record annual net inflow.
In early October, domestic stock markets remained weak, and investors continued to increase gold ETF holdings to diversify their portfolios, sustaining related demand.
In September, the average daily trading volume of gold futures on the Shanghai Futures Exchange fell 9% month-on-month to 360 tonnes.
Available data showed that the net long positions of the top 20 gold futures participants decreased by 5 tonnes from the end of August to 149 tonnes.
As both gold prices and volatility declined during the month, the drop in trading volume and net long positions reflected a cooling of market sentiment.
Despite the September pullback, net long positions in gold futures still surged 59% in the third quarter.
Trading volume rose 18% during the quarter.
Improved gold price performance after the second quarter, especially the strong rebound in August, was an important factor driving these changes.
Although gold prices corrected in September, both the London afternoon gold price in US dollar terms and the Shanghai afternoon benchmark gold price in RMB terms still posted gains in the third quarter, narrowing year-to-date losses through September, with gold prices stabilizing in early October.
In September, steady inflows into Chinese gold ETFs capped off a solid third quarter, driving growth in both AUM and total holdings.
Activity in the gold futures market declined somewhat in September, but overall trading remained relatively active in the third quarter.
In early October, investors continued to increase gold ETF holdings.
Supported by seasonal factors, gold withdrawals from the Shanghai Gold Exchange were underpinned in September, but weak jewelry demand weighed on overall third-quarter performance.
In September, the People's Bank of China increased its gold holdings by 23 tonnes, the largest single-month purchase since October 2023, bringing total third-quarter purchases to 63 tonnes.
Gold prices corrected in September, with the London afternoon gold price in US dollar terms and the Shanghai afternoon benchmark gold price in RMB terms falling 8.5% and 5.5% respectively.
The World Gold Council's short-term gold price performance attribution model (GRAM) showed two major factors weighing on gold prices: US Treasury yields climbed sharply amid the Federal Reserve's tightening monetary policy; and the US dollar strengthened (as the dollar appreciates, international gold prices denominated in US dollars typically weaken relative to gold prices denominated in other currencies).
In the third quarter, gold prices in RMB terms rose 3%, narrowing the year-to-date decline to 7%, as heightened US-Iran tensions kept investor inflation concerns elevated and raised market expectations for further Fed rate hikes.
With multiple factors offsetting each other, gold prices still edged higher in the third quarter: the Federal Reserve raised rates by 25 basis points in September; US economic growth showed greater-than-expected resilience, driving short-term Treasury yields sharply higher; long-term Treasury yields also rose as fiscal concerns pushed up term premiums.
Entering the fourth quarter, gold prices stabilized in early October, with domestic gold prices in RMB terms hovering around RMB 900 per gram, while international gold prices remained above USD 4,100 per ounce.
Key factors affecting short-term gold price movements
Geopolitical tensions and their impact on energy prices; investor expectations for inflation and the Federal Reserve's future rate path.
In September, banks, jewelers and other market participants withdrew 92 tonnes of gold from the Shanghai Gold Exchange, up 48% month-on-month.
Reasons for the temporary demand recovery: seasonal restocking ahead of the National Day holiday in early October typically boosts jewelry sector demand, as the National Day holiday often marks the start of the fourth-quarter peak jewelry sales season; the gold price correction also supported demand, with anecdotal evidence showing that bar and coin sales also improved, as many investors viewed lower gold prices as a better entry point; the sharp decline in domestic stock markets boosted investors' safe-haven demand; government bond yields continued to slide, lowering the opportunity cost of holding gold.
The People's Bank of China's continued announcements of gold purchases also further encouraged private gold investment.
However, despite the temporary demand recovery, gold withdrawals from the Shanghai Gold Exchange in September remained below levels of previous years due to noticeably weaker jewelry consumption, falling 22% year-on-year.
In September, the People's Bank of China announced an increase of 23 tonnes in gold holdings, the largest single-month purchase since October 2023.
After this increase, China's official gold reserves reached 2,410 tonnes as of the end of September, accounting for 8.5% of total foreign exchange reserves.
Due to a decline in foreign exchange assets, total official reserve assets fell 2% during the month to USD 3.8 trillion.
The People's Bank of China purchased a total of 63 tonnes of gold in the third quarter, the highest quarterly level since the third quarter of 2023.
Since the beginning of this year, the People's Bank of China has accumulated 103 tonnes of gold, making it one of the most active central banks in gold purchases globally.
The Mid-Autumn Festival long weekend at the end of the month and the seven-day National Day holiday in early October typically help boost gold sales.
The pre-holiday gold price correction attracted investors to buy on dips, driving noticeable improvement in demand for jewelry, gold bars and gold coins.
Looking ahead, the current macroeconomic environment may continue to support bar and coin investment, while the traditional peak sales season in the fourth quarter is expected to provide a seasonal boost to jewelry consumption, though relatively high gold prices may continue to suppress demand in tonnage terms.
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