New gold import quotas for Chinese banks could foreshadow another surge in Chinese demand.
Demand for gold was white-hot in China last spring, helping drive global prices to record highs. Chinese demand slowed in recent months due to high prices, but there are signs another Chinese gold buying spree could be on the horizon.
The People's Bank of China has given several commercial banks new gold import quotas in anticipation of revived demand despite high prices.
Sources told Reuters that the Chinese central bank granted the new quotas this month after a two-month pause due to slower physical demand caused by record-high prices.
The gold price in yuan has surged by over 17 percent year-to-date, outperforming most assets globally.
The People's Bank of China imposes import quotas to control the amount of bullion entering the country. It remains to be seen if the quotas will be used.
"Actual gold imports have been limited due to subdued demand. This suggests that the Chinese market is currently well-supplied with physical gold. The PBOC's continued pause on gold purchases reinforces the notion of ample domestic supply," an analyst told Reuters.
But the granting of new quotas indicates officials expect gold demand to ramp up again.
China ranks as the world's biggest consumer of gold.
Reuters called gold demand in China a "key factor" in the yellow metal's March-April rally that pushed the price to record levels. Analysts told Reuters, "If demand picks up again, it could further boost prices."
Analysts say jewelry demand continues to be weak in China due to the high prices, but investment demand was described as "healthy."
Asian gold demand more generally was hot through the first half of 2024. Vietnamese and Thai investors flocked to gold despite long lines and high prices. Gold flew off convenience store shelves in Korea. And gold demand in India surged during an important festival.
This is indicative of the shift of gold from the West to the East.
Asian buyers tend to be price sensitive, so it was surprising that gold remained robust even as the price surged to record levels last strong. Buying slowed somewhat in late June and July, but the new Chinese quotas indicate we could see another surge in demand as we move into the fall.
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