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Gold-backed exchange-traded funds in China — the largest bullion market — are swelling as the metal sets records, investors seek alternative assets, and local rules are tweaked to allow greater access.
Onshore fund holdings increased by 17.7 tons in the first three weeks of February, close to the monthly record inflow of 20.9 tons set last October, according to data from the producer-funded World Gold Council.
Gold has been one of the strongest performing major commodities over the past year, surging by more than 40%, although its march higher paused this week. The upswing has been underpinned by concerted central-bank buying — including from the authorities in China — interest-rate cuts by the Federal Reserve, and a tide of haven demand driven by US President Donald Trump’s disruptive trade and geopolitical policies.
In addition to the global themes, China gold’s market received a boost earlier this month, with the announcement of a pilot program allowing insurers to buy the metal for the first time. That shift helped drive the recent influx into ETFs, according to Wang Qiang, an ETF analyst at China Asset Management Co.
“Insurers may increase gold holdings when prices adjust downwards, providing support,” he said.
While fast-rising bullion prices have put a dent in Chinese jewelry consumption, investment demand has proved more resilient given the lackluster performance of traditional assets such as local equities, plus weakness in the yuan. In addition, the nation has been battling a property crisis that’s hurt home prices.
“Investors are recognizing gold’s ability to counter currency depreciation and diversify risks,” said Xu Zhiyan, fund manager at Huaan Yifu Gold ETF, the country’s largest, which holds more than 50 tons. Huaan’s management fee is one-eighth to one-sixth of that for bars, according to Xu.
The inflows seen in China are part of a global trend. Worldwide holdings in bullion-backed ETFs increased by about 81 tons year-to-date, touching the highest since January 2024, according to a Bloomberg tally. ETFs trade like shares, allowing investors access to bullion, but without themselves taking physical delivery of the metal. Although China-based funds are smaller than those elsewhere, their share of recent inflows has picked up.
A host of major banks predict that gold’s rally probably has further to run, potentially stoking further interest in ETFs in China and beyond. Among them, Goldman Sachs Group Inc. has a year-end target of $3,100 an ounce, while saying that $3,300 is also possible. Spot bullion was last near $2,865, below its latest peak of $2,956.19.
Compared with overseas counterparts, Chinese institutional investors’ allocation to gold isn’t high, said Wang Xiang, fund manager of Bosera Gold ETF, the second-biggest in the country.
The insurance pilot program allows investments up to only 1% of total assets in gold. That compares with 7% to 10% for global, long-term insurance funds or sovereign funds, according to Bosera’s Wang.
“Domestic investors will incrementally increase their gold holdings,” he said. “China is the largest consumer and producer of gold, so our influence in the gold market can be bigger.”
(By Yihui Xie)
