Commodities Outlook 2023: Gold to rebound as Fed easing starts | Article

Chinese gold demand picks up, but Covid risks remain

Chinese gold demand suffered earlier in the year due to the Covid-related lockdowns, particularly over the second quarter of the year, which is when strict restrictions were in place across Shanghai and Beijing. According to WGC data, Chinese consumer demand was down 23% YoY over 1H22. 

However, more recently, gold in China has been trading at a huge premium to international prices as improved demand exceeds the country’s imports, which are constrained by quotas. Only accredited banks in the country are allowed to import gold, with quantities set by the People’s Bank of China.

The elevated Shanghai-London gold price spread has continued in October with the seven-day National Day holiday, a stable local price, weak renminbi and economic uncertainty supporting gold sales in Beijing and Shanghai, according to data from the WGC. However, fluctuating Covid-19 cases and subsequent lockdowns could weigh on gold sales in certain areas going forward.  

For another key gold consumer, India, demand remained strong in October amid the onset of festivals and weddings season with both jewellery and bar and coin purchases boosted.

Despite stronger consumer demand, gold’s price direction will continue to be driven by investment flows, for which the outlook is less constructive in the short term.

Global gold ETF holdings saw their sixth consecutive monthly decline in October, standing at 3,490t (US$184bn) at the end of the month. North American funds led global outflows.

In the third quarter, investment demand was down 47% year-on-year, as ETF investors responded to a challenging combination of markedly higher interest rates and a strong US dollar.

Speculative positioning in COMEX gold further highlights the lack of investor interest – the latest COMEX exchange numbers showed that speculators in US gold futures were betting on lower prices, however, the number of the bets had declined.