Gold SWOT: China’s Gold Demand Has Cracked in the Face of Record-High Prices for the Precious Metal

Strengths

• The best performing precious metal for the week was platinum, up 2.10%. Gold was the second-best performer as it climbed toward record-high levels on Friday as traders flocked to haven assets ahead of key U.S. economic data. The precious metal traded to an intraday high of $2,522.50 on Friday before falling back with the weak jobs report raising fears that the Fed has waited too long and a potential recession is now being contemplated, reports Bloomberg.

• Soaring gold prices are hobbling demand for traditional applications like jewelry and dentistry, but wealthy Asian investors’ voracious appetite is more than offsetting the other declines. Strong physical bar buying in the over-the-counter market, particularly by family offices in Asia, helped gold demand register its best second quarter in data going back at least 25 years, according to the World Gold Council.
• Gold- and silver-backed exchange-traded funds have seen notable inflows this month, reports Bloomberg. If sustained, that trend could mark an inflection point for the holdings after a long stretch of declines and be supportive of the metals’ prices.

Weaknesses

• The worst performing precious metal for the week was palladium, down 0.44%. China’s gold demand has cracked in the face of record-high prices for the precious metal, with sales at the country’s jewelers in a funk as buyers hold off on purchases. Total demand for bullion fell almost 6% from a year earlier in the first half to 524 tons, the China Gold Council said in a quarterly report.
• Despite gold putting in its best performance since March, sales of American Eagle gold coins at the U.S. Mint only reached 19,555 ounces in July, which was a 43% drop from the prior month’s sales. Gold was up 5.2% in July; perhaps a reflection of some price sensitivity on the part of consumers who just saw the price hit an all-time high just two weeks ago.
• OceanaGold reported second quarter 2024 results with production of 98,200 ounces gold and AISC of $2,131 per ounce gold. Adjusted EPS for the quarter was $0.04 and CFPS was $0.14. The operational miss to Scotia’s expectations was driven by delayed access to high-grade breccia stopes at Didipio and lower mill throughput at Haile.

Opportunities

• Silver has underperformed gold recently amid broader selling pressure across industrial metals. JPMorgan continues to see a persistent deficit in the silver market driven by continued solar demand growth. Strong macro fundamentals and a supportive silver S&D backdrop drives JPMorgan’s forecast for silver prices to average $36 per ounce in 2025.
• Gold is the best portfolio hedge in the event Donald Trump retakes the White House, according to the latest Bloomberg Markets Live Pulse survey. Proponents of the precious metal as a haven play in case of Trump’s reelection outnumbered those picking the U.S. dollar two-to-one among the 480 respondents, according to Bloomberg.
• First Majestic announced the discovery of a new high-grade vein system at depth at Santa Elena, called Navidad. Drill results from six holes show strong gold and silver grades, and the system is approximately 500m southwest and 750m below Ermitaño and remains open in all directions, reports BMO.

Threats

• Elevation Gold, operator of the Moss mine in Arizona, announced it is seeking CCAA protection. Triple Flag maintains a silver stream on the Moss mine, reports RBC, which represented 6% of TFPM's corporate production in 2023.
• Precious metals refiner Heraeus confirms that buyers have become more cautious, noting that “China’s jewelry demand is creaking under pressure from high prices. Elevated gold prices, particularly in yuan terms, persistently low levels of consumer confidence and uncertainty over the economic outlook are crimping gold jewelry demand in China.”
• According to Canaccord, SSR Mining continues to expect that all displaced material from the Sabırlı Valley will be moved into temporary storage areas by the end of the third quarter 2024 and the estimated site remediation cost remains at $250-300 million to be spent over 24-36 months.