430 tons of gold bought in China as price drops

Weekly trading volume on the Au99.99 contract at the Shanghai Gold Exchange (SGE) reached 43 million lots last week, equivalent to approximately 430 tons, marking the highest level since April. This surge in activity occurred as gold prices fell below the $4,000 threshold, with the metal trading at $3,996.96 at press time, down 0.50% on the day.

Physical Purchases Drive Volume

The increase in SGE activity reflects physical accumulation rather than speculative leverage. Participants in the Au99.99 contract are required to pay in full and take delivery of the bullion, a structural feature that distinguishes these transactions from leveraged bets. Jinrui Futures analyst Zijie Wu noted that domestic demand is increasingly moving against the price trend, stating that local demand strengthens as prices fall.

A significant portion of this buying is executed through bank accumulation plans, which allow individual investors to purchase gold in small, incremental amounts over time. Reports indicate that purchases made through these plans in the first nine months of the current period have already exceeded the total for 2025. Central bank figures included in an April SGE report show that lenders sold 2,187 tons of gold to consumers in 2025, a volume more than triple the amount recorded in 2024. Although this gross figure excludes gold subsequently sold back to the market, it underscores the scale of retail participation in the Chinese gold market.

Central Bank and Market Context

The People’s Bank of China (PBOC) added to its reserves during the recent price decline, purchasing 740,000 ounces of gold in September. This acquisition represented the central bank’s largest buy since October 2023 and extended its consecutive buying streak to 23 months. The September purchase coincided with a period when gold prices dropped by more than 6%.

Macroeconomic conditions in China appear to be influencing investor behavior. The Chinese stock market has lost $2.4 trillion in value since its peak in May, and the benchmark CSI 300 index entered a bear market last week. Morgan Stanley has indicated that further losses are expected before Chinese equities find a bottom. Additionally, the property sector remains in a slump, and China’s 5-year bond yield hit a record low on Tuesday. With returns declining across stocks, property, and bonds, investors have turned to gold as a safe haven.

Gold has lost 7.73% of its value since January 1. The metal first traded below $4,000 on October 23, its first dip under that level since July. Justin Lin of Global X ETFs identified $3,900 as the next key price test for gold, while Bank of America has flagged a potential low of $3,750. Lin expects a softer rate outlook to provide near-term support for the metal, placing emphasis on the Federal Reserve rate decision scheduled for Wednesday.