- The strength of Chinese gold demand has been a key driver behind the growth in local mine supply, especially given that gold cannot be freely exported from China.
- The establishment of the SGE in 2002 marked a shift of China’s gold industry from being a restricted to a market oriented period, allowing gold to be traded freely in the domestic market.
- Gross gold bullion imports into mainland China in 2025 totalled 901t, highlighting their importance in international bullion trade.
Since 2013, China has been the world’s largest gold consumer, with combined physical investment, jewellery demand, and industrial offtake in 2025 totalling 869t. Jewellery consumption used to be the country’s leading segment of gold demand, accounting for 61%-75% of the total until 2023. However, on the back of the structural shift in the jewellery market (notably a move towards lighter, premium collections) and a transition from quasi-investment purchases of gold jewellery to gold bars and investment in gold accumulation plans, we saw a turnaround from mid-2024. This was ultimately driven by growing consumer awareness, amplified by social media, of the more favourable buy-sell spreads offered by bars, which typically incur lower labour costs and are exempt from consumption tax. As a result, consumers became extremely price-sensitive during strong price rallies over the past few years. In turn, the jewellery supply chain’s shift from conventional products to premium collections with higher margins, as well as the new VAT policy, reinforced this trend. This culminated with retail investment for the first time outperforming jewellery consumption in 2025.
On the supply side, since 2007 China has been the world’s largest gold producer. This saw four consecutive years of growth, reaching 392t in 2025. Fewer safety and environmental stoppages impacting production, along with higher gold prices, underpinned the rise in gold output. To meet the country’s substantial demand for gold, China is also the world’s largest gold bullion importer, with total imports reaching 901t in 2025.
Market Liberalisation
The history of the Chinese gold market can be divided into three broad phases: 1949-1993, the restricted period; 1994-2001, undergoing reform; and from 2002 onwards, market liberalisation, after the establishment of the Shanghai Gold Exchange - SGE. During the first phase, gold production was an essential way for the government to increase its foreign exchange reserves. The allocation of gold was therefore a typical feature of a planned economy, being tightly controlled by the government. In 1993, China began aligning its domestic gold prices with the international market. The following year, it abolished all preferential policies for gold producers and started its market-oriented price mechanism.
From 1995 onwards, China’s foreign exchange reserves surged, surpassing US$100bn in 2000 before reaching $403bn in 2003. Consequently, the significance of gold in China’s foreign exchange reserves began to diminish. Meanwhile, increasingly affluent Chinese households and individuals began shifting their focus on gold from short-term returns on wealth to its long-term value preservation and intergenerational transfer. All these factors led to the establishment of the SGE on 30th October, 2002. This marked the point when China’s gold industry became fully market-driven, entering a new era where market forces determined prices and trading.
Initially, the SGE was mostly established as a commodity trading platform to help facilitate the transition of gold trading from the People’s Bank of China’s (PBOC’s) centralised allocation and procurement system to market-driven trading. In 2004, the SGE launched gold spot deferred products (Au (T+D)), designed for institutional investors, marking a transformation towards a specialised financial market. At the same time, the China Banking Regulatory Commission approved the four major state-owned commercial banks (Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank) to launch gold investment services for retail investors. This new regulation, together with the launch of the Au (T+D) contract, led to a gradual increase in gold retail investment products, including minted gold bars, paper gold trading, and Gold Accumulation Plans.
In 2008, physical gold trading accounted for only 27% of the SGE’s total trading volume, with Au (T+D) dominating at 73%. To further support institutional and retail investors demand, on 8th January 2008, gold futures contracts were launched on the Shanghai Futures Exchange (SHFE). It was arguably the establishment of these two exchanges that helped strengthen China’s role in the global gold market.
Importantly, the SGE did not immediately open to foreign participation. However, in 2008, the SGE began admitting overseas financial institutions to trade on its main board. A more significant milestone came in 2014 with the launch of the SGE International Board in the Shanghai Pilot Free Trade Zone, which has allowed overseas institutions to use offshore RMB for trading on the SGE main board. In 2016, the SGE launched the “Shanghai Gold” pricing platform, conducted twice daily at 10:15 AM and 2:15 PM (or 3:00 PM). At the time of writing, the SGE has 104 foreign membership companies.
In essence, the SGE has evolved into a gold market featuring various trading methods (including auction, inquiry, and pricing), multiple time dimensions (such as spot, deferred spot, and forward), several precious metals (gold, silver, and platinum), and a number of product types (including standard gold, gold coins, and gold derivatives). On the back of gold’s impressive price gains and a series of record high prices in 2025, trading volumes of the SGE Au(T+D) surged by 66% y/y to a five-year high of 5,826t. Meanwhile, trading volumes of gold futures on the SHFE enjoyed a 49% y/y gain to a historical high of 110,020t.
By LBMA
Source: LBMA
