China’s Gold Market Could Finish Flat In 2024

silver’s outperformance is drawing attention and demand

(September 30, 2024 - Ernest Hoffman)

(Kitco News) – High gold prices have the potential to dampen demand during China’s holiday week, and the country’s bullion market now faces the possibility of zero growth for 2024, while silver’s outperformance is drawing attention from investors, according to precious metals analysts at Heraeus.

In their latest precious metals report, Heraeus warned that sky-high gold prices could dampen demand during China’s ‘Golden Week.’

“With the Chinese National Day (Golden Week) Holiday this week, consumer demand for gold would usually see some strength as the population celebrates,” they wrote. “However, weak imports in the preceding months suggest that internal demand is lacking. Imports of non-monetary gold to mainland China have fallen sharply as the year has progressed, mirroring the appreciation in the gold price. January saw imports of 233 tonnes, with an average gold price of CNY14,597, but by August imports had dropped to 21 tonnes; meanwhile, the Chinese gold price had risen to average CNY17,656 (source: China Customs).”

Heraeus noted that Chinese gold jewelry demand was relatively strong in Q1 of this year, totaling 195.4 tonnes, according to World Gold Council data. “However, as the gold price has risen to successive all-time highs in Q2 and Q3, demand has fallen sharply as prices seem to be putting buyers off, against a backdrop of poor consumer sentiment,” they wrote. “The Shanghai gold price has been trading at a discount to the LBMA price since the beginning of the month, also indicating soft demand.”

“Final data for Q3’24 demand is expected to be weak when released,” they added. “However, should the gold price pull back, particularly when coinciding with a continually strengthening yuan, Chinese demand could rebound in Q4’24, which tends to be a relatively strong time of year for sales. Unless jewellery purchases reverse course strongly, the Chinese market is unlikely to see any growth in 2024.”

Turning to the price action, the analysts noted that the gold price closed at new all-time highs on three out of five trading days last week. “Uncertainty over the path of further interest rate cuts in the US continued to fuel the rise,” they said. “Swaps traders currently see the probability of the size of a cut in November as 50-50 between 25 and 50 basis points. A second, larger cut would be most beneficial for gold. By Friday’s close, gold had risen by 1.04% week-on-week to $2,650/oz. The price has strong momentum, but it is also overbought and, so could take some time to consolidate the recent gains.”

Spot gold dipped to a session low below $2,630 per ounce shortly after 10 am EDT, but has since staged a modest recovery, last trading at $2,634.62 for a loss of 0.90% on the session.

Turning to silver, Heraeus wrote that the gray metal’s recent outperformance of gold is grabbing investors’ attention and has the fundamentals to back it up.

“The last quarter witnessed inflows to silver-backed ETFs totalling 829 tonnes, the most in a quarter since the beginning of 2021 when holdings reached their peak,” they noted. “The silver price is comfortably out-performing gold this year, being up 34.3% year-to-date, against gold’s 29.5%. A variety of fiscal and monetary stimuli announced in China last week probably helped with sentiment in silver. Additional support for the Chinese property sector could help solar installations, given that a significant proportion of new panels are installed on rooftops.”

The analysts said that solar installations in China have grown faster than expected this year, with forecasts varying on how much China will exceed its initial forecast for 2024. “In January, the China Photovoltaic Industry Association (CPIA) predicted that China would install ~190 GW of new solar panels this year,” they wrote. “However, the latest estimate from energy analysts Ember predicts installations reaching 334 GW, and globally for 29% growth year-on-year. In metal terms, solar silver demand is expected to rise by 20% year-on-year to 232 moz. The lower growth rate in silver demand vs. installations is a result of thrifting to reduce the metal usage intensity per GW.”

Addressing the price action, the analysts noted that silver closed below $32 per ounce last week after failing to push through resistance at that level for the third time. “Intra-week, the silver price did reach an 11-year high of $32.71/oz, however, it subsequently fell back,” they said. “If the price can hold above $32/oz, then there is potential for more upside.”

Silver prices were also down on Monday morning, with spot silver last trading at $31.114 per ounce for a loss of 1.60% on the daily chart.