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Chinese investors are piling up gold funds at record rates as Donald Trump’s trade war and fears of US recession and inflation hunting shelters’ assets.
So far this month, 70 tonnes (or about $7.4 billion) of Chinese gold exchange trading funds have traded totals of 70 tonnes or about $7.4 billion, according to the World Gold Council, a trade group.
“We’ve seen demand for ETFs from other regions, but China is really leading now,” said John Reid, senior market strategist at WGC, adding that China’s investment demand for precious metals has risen “dramatically” this month.
The share of countries with global gold ETFs has increased by 6% from 3% earlier this year, but China’s demand accounts for more than half of the global gold ETF inflow over the past four weeks.
Gold is one of the best performing assets since the US president’s election late last year, with many other popular “Trump trades” such as dollars, bitcoin and stocks winning a big early before turning the course back.
The yellow metal has repeatedly surged to fresh highs, returning to around $3,300 after rising above $3,500 per troy ounce last week. It has been 26% since the end of last year.
Last week, the local price premium for China’s gold rose briefly to $100 per troy ounce, surpassing the international US dollar gold price, in signs of local demand.
Shopping prompted Shanghai Gold Exchange to issue warnings even when prices skyrocketed.
“Investors need to manage risk and make reasonable investment decisions in light of recent changes in gold prices,” he said in a statement last week.
The country’s strict capital management means investors have limited investment options. Gold has become an attractive alternative for many investors as the real estate and stock markets have declined sharply in recent years.
Mainland China retail investors are now approaching gold like stocks. “It’s like when stocks are rising and Mom and Pop investors are in a hurry to open a securities account,” he said. “When gold prices rise, people think buying money is a surefire way to make money.”
China is the world’s largest buyer of gold bars and coins and the second largest buyer of gold jewelry after India, but the growth of domestic gold-backed ETFs has been limited until recently.
Global global demand for gold rose to 1,206 tonnes in the first quarter of the year, taking into account all forms of purchases, up 1% compared to the same period a year ago, according to the WGC quarter report released Wednesday.
Demand for jewelry fell 21% in the quarter compared to a year ago, as buyers were moving away from higher prices. However, global investment demand for gold, including investments in gold bars, coins and ETFs, rose 170% in the same period last year.
This has led the WGC to forecast this year’s gold investment demand at around 160 tons at the midpoint compared to previous forecasts at the end of 2024.
“What we didn’t expect was to go very hard on the gusts of policy declarations, tariffs and executive orders from the White House. All of this essentially raised uncertainty in the market and sparked demand for gold investors that we didn’t expect,” Reade said.
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A huge stockpile of gold built in New York in the first quarter of this year was short in London as traders rushed to bring in supplies ahead of the potential tariff levies.
However, the White House said that tariffs would not apply to bullion, so that the process is reversed and gold inventory is beginning to be reduced.
