Chinese retail physical gold investment totalled 107 tonnes in Q2, down 48% quarter-on-quarter and 7% year-on-year, after an all-time high of 207 tonnes in Q1. Even so, it was the third-highest Q2 since 2010, and with the local gold price up 29% year-on-year it set a second-quarter record by value. For H1 2026, retail gold investment demand rose 31%. Buying was concentrated in April and early May, before easing in late May and June as the price stayed rangebound and flows shifted towards domestic AI-related equities; Chinese gold ETFs still added 29 tonnes in H1, the second-strongest start on record, while total AUM edged up 1% despite June outflows.
VAT changes introduced last November have favoured SGE-member gold bars and coins, which remain VAT-exempt, while silver and platinum bars and coins, plus gold investment products sold by non-SGE members, face 13% VAT on full value; jewellery buyers effectively pay around 7% VAT. The policy has encouraged a shift from quasi-investment 24K jewellery into gold bars, and helped propel silver bar sales in late 2025 before demand softened as prices fell. Metals Focus forecasts a 20% year-on-year rise in Chinese gold demand in H2 2026 to around 500 tonnes. Globally, 2025 coin and bar demand reached a 12-year high of 1,374.1 tonnes worth $154bn, with more than half coming from China and India.
Physical Demand And Domestic Gold Momentum
We are seeing gold prices stabilize after recent fluctuations, making the coming weeks a crucial window for derivative traders. With Chinese retail gold investment surging 31 percent in the first half of 2026, physical demand is providing a rock-solid floor for the market. We suggest derivative traders leverage this underlying strength by building long positions during any temporary price dips.
Chinese gold ETFs added 29 tonnes in the first half of the year, marking one of the strongest starts on record. Additionally, the local gold price in China has jumped 29 percent year-over-year, demonstrating incredible domestic momentum. We believe this persistent buying pressure will prevent any major downside for gold futures in the near term.
Regulatory Effects And Trading Strategy Implications
Recent regulatory shifts, like the 13 percent VAT on non-SGE metals, have pushed Chinese investors heavily toward standard gold bars over silver or jewelry. This structural shift means physical gold demand is concentrated and highly liquid, which historically supports a steady upward trend in futures markets. Traders should consider using bull call spreads to capture this anticipated steady growth while limiting risk.
Forecasts point to Chinese gold demand rising by 20 percent to around 500 tonnes in the second half of 2026. As global interest rates shift and central banks continue to accumulate reserves, gold’s safe-haven appeal is only growing. We recommend holding long positions and avoiding aggressive short plays during this resilient cycle.
