Gold has defied expectations in recent weeks, experiencing a sustained price rally that’s broken records. While a weakening dollar due to anticipated dovish policy shifts from the Federal Reserve is a key player, the dynamics behind the surge are more nuanced.

Gold has already digested a reduced outlook for expected easing by the Federal Reserve in 2024. Despite this, gold continues its upward trajectory. This suggests additional factors are at play, such as the return of significant physical demand, particularly from China and the Middle East. This physical buying spree could be driven by a confluence of factors, including inflationary concerns and rising geopolitical tensions in the Middle East.

China has become one of the world’s most significant buyers of gold, with the China Gold Association (CGA) reporting that the country’s gold consumption in 2023 totalled nearly 1,090t, an increase of 8.73% from the previous year (China’s young generation powering gold rush – Another measure of China’s overall demand for gold, the Shanghai Gold Exchange (SGE), saw demand in January up 95% (YoY)

The strong appetite for gold in China can also be seen in the ‘Shanghai Premium’ – a measure that calculates how much physical gold costs in China over the international price spot price. The ‘Shanghai Premium surged to a record high of $100/oz last year, and has stabilised in recent month to $30-40/oz. A strong premium in the East is important as it presents an opportunity for international bullion banks to purchase gold in London/NY and sell into mainland China – a structural demand pull of gold moving across the globe.

Behind the record demand from China an interesting demographic shift is taking place. Younger buyers aged 25 to 34 saw their share of overall gold purchases rise from 16% to 59% in 2023. Declining stock market, and local real estate values, have contributed to the increase from the younger generation, but it’s the investment form that indicates the true nature behind the demographic shift.

Younger buyers in China are choosing to acquire 1g gold beans as a form of long-term asset preservation.

The below chart is a measure of total wholesale gold demand in China.
Shanghai Gold Exchange Demand (tonnes)
Gold chart
gold bar
While China is experiencing a surge in demand for physical gold, silver has taken the spotlight in India. Last month, India imported a record 70 million ounces (~2,200 tonnes) of silver, with silver grain accounting for more than half of the total imports. India choosing to import silver grain suggests that the silver is likely headed towards industrial uses, with recent plans for an Electronic Vehicle (EV) gigafactory perhaps a likely destination for the unprecedented silver flows into the country (India’s huge EV battery gigafactory plans could spur black mass imports and cut exports, said Lohum founder – Fastmarkets).

The lower import duties via the Indian International Bullion Exchange (IIBX), which was established in July 2022, has likely contributed to the surge in silver flows, with the record February flow representing an unsustainable ~8% of the total annual mine supply into a single country. Industrial uses aside, India still imported over 30 million ounces of silver bullion last month from London, which suggests a tilt towards the cheaper of the two metals, with the Gold-to-Silver Ratio (GSR) still elevated near 90/1.
Silver Importins into India (USD
silver prices chart

Source: DGCIS (

While we continue see record gold demand from China, and record silver flows into India, we are yet to see the more powerful investment flows from the Western buyers. The popular exchange traded funds (ETFs) have experienced ongoing outflows over the last three years, as investors has chosen to overlook the metals and chase trendier tech and AI sectors. In recent weeks, however, the popular physical ETFs have begun to see inflows (notably within silver, see below), suggesting that investor sentiment could be about to return in favour of the asset class. If sustained investor flows returned, then we would anticipate a further sustained move higher in Gold’s price. As a result, we are watching this investor subset with interest.

Silver ETF Flows (white line) vs Silver Price (blue line)
Silver ETF price versus silver price
Source: Bloomberg

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