The average Shanghai-London gold price premium remained elevated in October but fell during the second half of the month as COVID-related uncertainty clouded local gold demand prospects. Seasonal weakness and COVID-related disruptions weighed on October’s gold withdrawals from the Shanghai Gold Exchange (SGE), leading to an 81t fall m-o-m. The total assets under management (AUM) in Chinese gold ETFs reached 52t by the end of October, an outflow of 6t in the month, according to Ray Jia, Senior Analyst, China World Gold Council.
The analyst notes that the monthly average local gold price premium remained elevated. Robust gold demand has been driving up the local gold premium recently. And as October kicks off the traditional peak season for gold demand, optimistic expectations played a key role in pushing the month’s average premium up to $36/oz, on par with the record level of May 2013. The imbalance between local demand and supply had a measurable impact on the local gold price premium.
The local gold price premium, however, lost some momentum in mid-late October. This was likely due to concerns that recent COVID resurgences and potential lockdowns may dent China’s gold demand. And this was also reflected in weaker-than-usual October gold withdrawals from the SGE.
SGE gold withdrawals totalled 98t in October, an 81t decline m-o-m and a reflection of seasonal patterns. Manufacturers actively replenish gold in September ahead of the traditional peak gold consumption season, and this usually leads to lower wholesale gold demand in October.
China’s economy during October also tumbled as COVID disruptions hit.
Outflows from Chinese gold ETFs accelerated, losing 6t in October. Total holdings stood at 52t by the end of the month, the lowest since March 2020. The AUM in Chinese gold ETFs has exhibited a strong negative correlation with the local gold price – the tactical approach of local investors to “buy low and sell high” may be a key driver.
Gold imports remained elevated in September.
COVID-related uncertainty will remain a key risk factor to China’s gold demand during Q4. This uncertainty was apparent in the uneven gold consumption across different cities during the National Day holiday and has led to the lower wholesale gold demand and weaker economic growth we have seen during October.
Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished
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