In August, China’s gold imports decreased, according to Commerzbank. Even though gold prices saw an increase, leading to robust ETF inflows, these high prices are impacting physical demand.
China’s gold imports diminished by 3.4% from the previous month. Additionally, net imports from Hong Kong decreased by 39%. It is noted that gold dealers are selling an ounce of gold with discounts between $21 and $36, marking the steepest reductions since May 2020.
Disconnect Between Paper Market And Physical Market
We are seeing a major disconnect between the paper gold market and the physical market. The news that China’s gold imports fell in August 2025, despite strong ETF inflows pushing prices up, is a significant warning sign. Those discounts of $21 to $36 per ounce show that the world’s biggest physical gold buyer is refusing to pay these high prices.
This situation suggests the current rally is fragile and built more on speculation than on fundamental demand. We must be cautious, as a market rally without the support of the largest consumer is often unsustainable. The weakness in physical demand could put a cap on how high prices can go in the near term.
This pattern is a clear echo of what we saw back in mid-2024, when the People’s Bank of China officially paused its gold purchases for the first time in 18 months as prices hit records. This recent import data for August 2025 reinforces the view that Chinese demand, both official and private, is highly sensitive to price. With net imports from Hong Kong down 39%, a key pipeline for gold into the mainland is clearly drying up.
Strategies For Derivative Traders
For derivative traders, this indicates it may be time to consider strategies that profit from a price drop or consolidation. Buying put options on the SPDR Gold Trust (GLD) or establishing bear put spreads could provide profitable exposure to a potential correction. These positions offer a defined risk for betting that the weak physical market will soon pull down the paper price.
The current discounts are the deepest we’ve seen since the market dislocations of May 2020. While the cause back then was pandemic-related logistics, the effect now is purely price-driven rejection from a key consumer. Historically, such a wide gap between Shanghai and London prices often signals that a price peak is near.
Moving forward, we should closely monitor weekly ETF flow data. If the pace of ETF buying slows or reverses, the primary support for the current price level will be removed. At that point, the weak physical demand from China will become the market’s dominant theme, likely triggering a sharp move lower.
