China Gold Market Faces Zero Growth in 2024, Silver Demand Rises

Precious metals analysts at Heraeus have indicated that high gold prices could suppress demand during the Chinese holiday period, with the country's gold market now facing the possibility of zero growth in 2024, while the outstanding performance of silver is garnering investor attention.

In their latest precious metals report, Heraeus warned that astronomical gold prices might dampen demand during China's Golden Week. They wrote: "As the Chinese National Day (Golden Week) holiday approaches this week, consumer demand for gold typically strengthens amidst the celebrations." However, weak imports in the previous months suggest a lack of domestic demand. Over time, non-monetary gold imports in Mainland China have plummeted, reflecting the rise in gold prices. In January, 233 tons were imported with an average gold price of 14,597 CNY, but by August, imports had dropped to 21 tons; meanwhile, the Chinese gold price has risen to an average of 17,656 CNY (source: China Customs).

Heraeus noted that, according to the World Gold Council, the demand for Chinese gold jewelry was relatively strong in the first quarter of this year, totaling 195.4 tons. They wrote: "However, as gold prices continued to rise to historical highs in the second and third quarters, the prices seemed to deter buyers amidst poor consumer sentiment, leading to a significant drop in demand." "Since the beginning of this month, the Shanghai gold price has been lower than the London Bullion Market Association price, also indicating weak demand."

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They added: "The final data for demand in the third quarter of '24 is expected to be weak." "However, if gold prices retreat, especially with the ongoing strengthening of the Chinese yuan, Chinese demand may rebound in the fourth quarter of '24, which is typically a relatively strong sales period of the year. Unless jewelry purchases strongly reverse, the Chinese market is unlikely to see any growth in 2024."

Regarding price trends, the analysts noted that for three-quarters of last Friday's trading day, gold prices closed at historical highs. They stated: "The uncertainty of the further interest rate cut path in the United States continues to drive the increase." "Swaps traders currently consider the possibility of a rate cut between 25 and 50 basis points in November to be a 50-50 chance. A second, more substantial rate cut would be most favorable for gold. As of Friday's close, the gold price had risen by 1.04% month-on-month, reaching $2,650 per ounce. The price momentum is strong, but it is also overbought, so it may take some time to consolidate the recent gains."

Speaking of silver, Heraeus wrote that the gray metal has recently outperformed gold, which has caught the attention of investors and has fundamental support.

They noted: "Last quarter, the total inflow of funds into silver ETFs was 829 tons, the highest level since early 2021." "This year, the performance of silver prices has been far better than that of gold, with a year-to-date increase of 34.3%, compared to gold's 29.5% increase. The various fiscal and monetary stimulus measures announced by China last week may help boost sentiment in the silver market. Given that a significant portion of new panels are installed on rooftops, additional support for China's real estate industry may help facilitate the installation of solar devices."

Analysts stated that this year, China's solar installation growth has exceeded expectations, with varying predictions on the extent to which China will surpass the initial 2024 forecast. They wrote: "In January this year, the China Photovoltaic Industry Association (CPIA) predicted that China would install about 19 GW of new solar panels this year." "However, the latest estimates from energy analyst Ember predict that installations will reach 33.4 GW, a global year-on-year increase of 29%. In terms of metals, solar silver demand is expected to increase by 20% year-on-year, reaching 2.32 million ounces. The lower growth rate of silver demand compared to installations is due to savings to reduce the metal intensity of use per GW."

Regarding price trends, analysts noted that silver closed below $32 per ounce last week, after failing for the third time to break through the resistance level at that price. They stated: "During the week, silver prices did reach an 11-year high of $32.71 per ounce, but then fell back." "If the price can remain above $32 per ounce, there is a possibility for further increases."