Chinese stimulus is expected to increase demand for precious metals
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Chinese stimulus is expected to increase demand for precious metals

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The World Gold Council believes that gold markets will get another tailwind as China continues to release its massive stimulus package to the economy.

According to Ray Jia, head of research in China, improved consumer confidence and GDP growth are expected to drive Chinese gold demand going forward.

“That said, other factors such as the gold price, the number of weddings, changes in young consumers’ tastes, as well as industry consolidation … are also important drivers of local demand for gold jewelry,” Jia said.

Demand for jewelry has long been the biggest driver of gold markets in China, although recent research shows a growing segment of investors looking to buy precious metals.

Chinese demand for gold, which has historically been dominated by jewelry, has changed somewhat as purchases of bars and coins have become more common. (Source: World Gold Council) (Credit: PR)

Chinese demand for gold, which has historically been dominated by jewelry, has changed somewhat as purchases of bars and coins have become more common. (Source: World Gold Council)

Continues to shine

Gold has long been seen as a symbol of good luck in addition to its popularity as a fashion accessory in China.

“We believe its relevance in the daily lives of Chinese consumers, as well as in the portfolios of local investors, will continue to shine,” Jia wrote. “We will keep an eye on future developments and provide more detailed analysis as needed.”

The World Gold Council’s research showed that for every 1% increase in the value of local stocks, a 0.4% decrease in demand for gold is seen. This correlation is attributed to risk appetite during strong economies.

“However, the aggressive stimuli should provide a tailwind,” Jia wrote. “Our analysis shows that economic growth is the fundamental driver of Chinese gold demand. More specifically, every one percentage point increase in China’s annual GDP growth leads to a 5.2% increase in gold jewelry consumption and a similar 5.1% increase in buying bars and coins, holding everything else constant.”

Demand pressure

Gold withdrawals from the Shanghai Gold Exchange have been below the long-term average, according to the report.

“While the rising gold price has helped sustain some investment purchases, it has dampened gold jewelry consumption. And the pessimistic outlook for China’s economy has also curbed household spending in anticipation,” Jia wrote.

This data from the Shanghai Gold Exchange shows that demand for gold in 2024 has fallen below the 10-year average. (Source: World Gold Council) (Credit: PR)

This data from the Shanghai Gold Exchange shows that demand for gold in 2024 has fallen below the 10-year average. (Source: World Gold Council)

That outlook could change, however, as Chinese stimulus continues to bolster the economy and ease fears of a slowdown.

“The expected recovery in economic growth is likely to boost China’s gold demand,” Jia wrote. “And as the largest components of that demand, we think gold jewelry and bars and coins will be most affected.”

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This article is for informational purposes only. The opinions and analysis herein are those of the author and do not constitute financial advice. The Jerusalem Post (JPost.com) does not endorse or recommend any investment based on this information. Investors should consider their financial situation, investment objectives and risk tolerance before making any decisions. It is recommended to consult a qualified financial advisor. JPost.com is not responsible for any investment losses from using this information. The information provided is for educational purposes only and should not be considered trading or investment advice.




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