Insights 
VT 
Gold demand in China decreased by 3.5% in the first half of the year compared to the previous year. Although there was a 26% drop in jewellery demand to 200 tonnes, an increase of 24% in demand for bars and coins to 264 tonnes helped mitigate a sharper decline.
The contrasting trends highlight that bars and coins overtook jewellery in demand, influenced by uncertainty from US trade policies. While jewellery suffered due to record high prices, bars and coins benefited from their role as safe-haven assets.
Shift from Consumption to Investment
Gold has a dual function as both a store of value and a component with different demand dynamics in jewellery. Investment demand tends to impact price trends more, while jewellery demand has a stabilising impact due to its countercyclical nature.
We believe the shift in Chinese demand from consumption to investment is a powerful bullish signal for gold. This change indicates the market’s foundation is moving towards price-driving investment rather than price-sensitive jewellery. Derivative traders should therefore position for upward price movements in the coming weeks.
This trend is reinforced by official policy, as the People’s Bank of China has expanded its gold reserves for 17 consecutive months through March 2024, holding over 2,262 tonnes. This sustained central bank buying provides a strong price floor and signals a strategic de-dollarization that retail investors are now emulating. We see this as a clear indicator of institutional confidence in the metal.
Outlook for Gold Prices
Major financial institutions share this outlook, with analysts like Citi’s Aakash Doshi forecasting that prices could reach $3,000 an ounce over the next year. The surge in safe-haven seeking, driven by global economic uncertainty and geopolitical tensions, underpins these aggressive price targets. We feel that buying call options or establishing bull call spreads are prudent strategies to capture this potential upside.
Historically, gold priced in local currency serves as an effective hedge for Chinese investors during periods of yuan weakness. With the yuan recently falling to a four-month low against the dollar and persistent concerns in the nation’s property sector, the flight to the safety of gold is set to continue. This internal economic pressure further supports investment inflows over discretionary spending.
Data from the COMEX exchange shows that money managers have already increased their net-long futures positions to the highest level in four years. This indicates that large speculators are aligned with our view and are betting heavily on continued price appreciation. Acting now to build a long position seems more advisable than waiting for a significant pullback.
