China's Impact on Gold Market Just Beginning: LBMA

This year, China has played an unprecedented role in driving gold prices to new highs. Despite a cooling market in the second half of this year, investors should not underestimate the impact of this Asian powerhouse on the precious metals market.

During a panel discussion at the 2024 London Bullion Market Association (LBMA) Precious Metals Conference, participants noted that China's influence in the gold market will continue to grow as its economy develops.

"From a consumption perspective, the continuous growth of China's economy and its large consumer base will provide a solid foundation for China's gold market," said the vice president of the Shanghai Gold Exchange (SGE) during the discussion.

Gold demand is shifting from basic consumption to becoming an important investment asset in China's economy. He explained that the SGE is simplifying its membership procedures to make it easier for international companies to enter China's gold market.

"I believe there will be more trading strategies and a larger trading market," said Zeng Hui. "This is a very exciting opportunity, and I warmly welcome global institutions to join our market."

The general manager of China Bosi Gold Science and Trade Co., Ltd. (CPC) described China's precious metals market as being at an important crossroads.

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"China's market participants are gradually becoming traders rather than net buyers," he said.

Zheng Feng pointed out that as gold prices climbed to historical highs in the second half of this year, many initial buyers have already begun to sell gold to the market.

He added that although the evolution of China's gold market is positive, it also faces some challenges. He noted that consumer demand faces two main obstacles: weak economic growth and high prices that suppress market demand.

Zheng Feng said he expects consumers to return to the market when gold becomes more affordable.He also pointed out that, despite its small size, CPC Company is involved in all aspects of the precious metals market, from recycling and refining to jewelry and trading services. He also mentioned that a subsidiary of CPC operates approximately 2000 jewelry stores in China.

John Levin, Head of Metals Sales and Trading for Asia Pacific at TD Securities, jokingly stated that Zheng Feng's mention of the company's small size was not an exaggeration. He explained that Western investors find it difficult to comprehend the sheer size of China's precious metals market. He emphasized the reasons why the scale of the Chinese market has become a major global influence.

"People need to understand the scale of this market. The number of jewelry stores and the variety of goods in China are enough to make some of the largest chain stores in the United States pale in comparison," he said, "Part of the reason for the rise in gold prices in the first half of this year is the purchasing power of Chinese consumers."

Levin pointed out that an important reason why Chinese consumers will continue to invest in gold is that, as an investment, gold has proven its effectiveness.

"For those who buy gold to protect their wealth, the effect is significant," he said, "Gold will continue to be an important asset in China. There is an ingrained notion here that buying gold is a good investment."

Regarding the future development of the gold market, Zeng Hui stated that the Shanghai Gold Exchange (SGE) is currently seeking to expand beyond China. He explained that they are collaborating with institutions in Malaysia, Thailand, Singapore, and Hong Kong to make the SGE an international exchange.

Through international expansion, Zeng Hui said that the SGE can stabilize domestic physical demand, thereby reducing the volatility of premiums.

"We are ready to share our development experiences and technology," he said, "We hope to expand the vision of the gold market through cooperation and create more opportunities for collaboration. Our purpose in participating in the international market is not competition, but cooperation with local and international counterparts."

Levin stated that the SGE's focus on international expansion will ultimately have a positive impact on the gold market. Although this will increase competition for some companies, the overall market size will expand.

Despite the bright prospects for China's gold market, panel members also pointed out that the market faces some short-term challenges. In recent months, the People's Bank of China has introduced new stimulus measures to support the slowing economy, and some panel members believe that this may prompt Chinese investors to sell gold and turn to the stock market. However, the expected weakness in domestic gold demand is only expected to be a short-term adjustment.