In August, China’s gold imports fell, according to Commerzbank. While gold prices increased, driving strong ETF inflows, these high prices are hurting physical demand. China’s gold imports dropped by 3.4% from the previous month. Moreover, net imports from Hong Kong fell by 39%. Gold dealers are offering discounts of $21 to $36 per ounce, the highest since May 2020.

Disconnect Between Paper Market And Physical Market

There is a significant disconnect between the paper gold market and the physical market. News of China’s gold imports falling in August 2025, despite strong ETF inflows pushing prices up, is a concern. The discounts of $21 to $36 per ounce indicate that China’s demand—the world’s largest physical gold buyer—is not willing to pay these high prices. This situation suggests that the current price rally is weak and mainly driven by speculation rather than steady demand. We should be cautious: a rally without the backing of the biggest consumer is often not sustainable. Weak physical demand could limit how high prices can rise soon. This pattern reminds us of mid-2024, when the People’s Bank of China paused its gold purchases after 18 months as prices reached record highs. The recent import data for August 2025 reinforces the idea that both official and private Chinese demand sensitivities are tied to price. With net imports from Hong Kong down 39%, a crucial supply line for gold into mainland China is drying up.

Strategies For Derivative Traders

For derivative traders, it might be time to explore strategies that profit from a price decline or stabilization. Buying put options on the SPDR Gold Trust (GLD) or setting up bear put spreads could be beneficial if a price correction happens. These strategies define risk while betting that the weak physical market will lower the paper price soon. The current discounts are the largest since the disruptions of May 2020. While the earlier disruptions were due to pandemic-related logistics, the current situation stems from a refusal by a key consumer to accept high prices. Historically, a significant gap between prices in Shanghai and London often signals an approaching price peak. Moving forward, we should closely watch weekly ETF flow data. If ETF buying slows down or reverses, it will remove key support for current prices. At that point, weak physical demand from China could dominate the market, likely leading to a sharp price drop. Create your live VT Markets account and start trading now.

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