Latest data from the World Gold Council on the Chinese gold market show that in the final month of the third quarter, international gold prices pulled back sharply and gold priced in Chinese yuan also weakened, but both still posted modest gains for the full quarter. In September, international gold prices and yuan-priced gold fell 8.5% and 5.5%, respectively. Yuan-priced gold still rose 3% in the third quarter, narrowing its year-to-date decline to 7%. Rising US Treasury yields, a stronger dollar and shifting policy expectations after the Federal Reserve's 25-basis-point rate hike in September pressured gold. The resilience of the US economy pushed short-end Treasury yields higher, while fiscal concerns and term premiums lifted long-end yields. At the same time, escalating US-Iran tensions, volatile energy prices, inflation concerns and market views on the Fed's future rate path continued to provide support for gold. Entering October, domestic gold prices fluctuated around 900 yuan per gram, while international gold prices held above $4,100 per ounce.

After the price pullback, fund flows offered a clearer gauge of market sentiment. China's gold ETFs continued to attract inflows in September, with net inflows of 11 tonnes, equivalent to roughly 11 billion yuan. Total holdings rose to 304 tonnes by month-end, a record high. In the third quarter, net inflows totaled about $3.9 billion, holdings increased by 27 tonnes, and total assets under management grew 13%. Although the September price decline pulled total assets under management down 2% to 276 billion yuan, sustained inflows showed that some investors were using gold ETFs to diversify portfolios amid weak local equity markets and falling bond yields. Lower government bond yields reduced the opportunity cost of holding gold, while official gold purchase announcements also boosted sentiment. Positive inflows in the third quarter offset the second-quarter losses, and year-to-date net inflows are on track for a record. In early October, local equity markets remained weak, and demand for diversification persisted.

The futures market showed signs of cooling. September average daily gold trading volume on the Shanghai Futures Exchange fell to 360 tonnes, down 9% from the previous month. Net long positions of the top 20 members declined by 5 tonnes to 149 tonnes from the end of August, indicating that lower prices and volatility had weakened short-term trading sentiment. However, total third-quarter volume still rose 18%, and net long positions increased 59%, suggesting that the August price rally had a notable boost to trading activity.

Physical and wholesale demand were also stimulated by the price pullback. In September, banks, jewelers and other participants withdrew 92 tonnes of gold from the Shanghai Gold Exchange, up 48% month-on-month but still down 22% year-on-year. Pre-National Day holiday restocking, improved gold bar sales and dip buying by investors drove a seasonal rebound on the wholesale side. Nevertheless, third-quarter wholesale gold demand fell 21% year-on-year to 234 tonnes, 44% below the 10-year average of 418 tonnes, with jewelry consumption remaining the main drag.

Central bank gold buying continued to provide important support. The People's Bank of China added 23 tonnes of gold in September, the largest monthly increase since October 2023, lifting official gold reserves to 2,410 tonnes, or 8.5% of total reserves. In the third quarter, the central bank added 63 tonnes in total, and 103 tonnes year-to-date. Affected by a decline in foreign exchange assets, China's total reserves fell 2% in the month to $3.8 trillion. With the traditional fourth-quarter peak season approaching, jewelry sales still face constraints from weak consumer confidence and affordability.