Gold demand in China fell by 3.5% in the first half of the year compared to last year. While jewellery demand dropped 26% to 200 tonnes, a 24% rise in demand for bars and coins to 264 tonnes helped lessen the decline. These mixed trends show that bars and coins have surpassed jewellery in popularity. This shift is due to uncertainty around US trade policies. High prices hurt jewellery demand, while bars and coins thrived as safe investments.

Shift from Consumption to Investment

Gold serves two purposes: it is both a safe asset and a component of jewellery, where demand varies. Investment demand often influences price changes more than jewellery demand, which tends to stabilize prices. We believe the change in China’s gold demand from spending to investment sends a strong positive signal for gold. This shift indicates that the market focus is moving toward investment-driven pricing rather than sensitive jewellery purchases. Traders should prepare for rising prices in the coming weeks. This trend is backed by government policy. The People’s Bank of China has increased its gold reserves for 17 straight months, holding over 2,262 tonnes as of March 2024. This ongoing buying from the central bank creates a solid price support and suggests a move away from the US dollar, a trend retail investors are starting to follow. It clearly shows that institutions believe in the value of gold.

Outlook for Gold Prices

Many major financial institutions share this view. Analysts like Citi’s Aakash Doshi predict that prices could reach $3,000 an ounce within a year. The rise in safe-haven investments, fueled by global economic uncertainty and geopolitical issues, supports these high price expectations. We recommend buying call options or setting up bull call spreads to take advantage of this potential increase. Typically, gold priced in local currency acts as a good hedge for Chinese investors during times when the yuan is weak. The yuan recently dropped to a four-month low against the dollar, alongside ongoing problems in the property market, leading more people to seek gold for safety. This internal pressure will likely boost investment more than discretionary spending. Data from the COMEX shows that money managers have raised their net-long futures positions to the highest in four years. This means that big speculators agree with our outlook and are betting on higher prices ahead. Now is a good time to build a long position instead of waiting for a significant price drop. Create your live VT Markets account and start trading now.

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