The World Gold Council's latest data on China's gold market showed that international gold prices fell sharply in the final month of the third quarter, while RMB-denominated gold also weakened in tandem, though the quarter as a whole still ended with a modest gain. In September, international gold prices fell 8.5% and RMB-denominated gold declined 5.5%, while RMB gold prices still rose 3% in Q3, narrowing the year-to-date decline to 7%. Rising U.S. Treasury yields, a stronger dollar, and shifting policy expectations after the Federal Reserve's 25-basis-point rate hike in September pressured gold prices. Resilient U.S. economic data pushed up short-end Treasury yields, while fiscal concerns and term premium also lifted long-end yields. Meanwhile, escalating U.S.-Iran tensions, volatile energy prices, inflation concerns and market assessments of the Fed's future rate path continued to provide a floor for gold. Entering October, domestic gold prices fluctuated around RMB 900 per gram, while international gold remained above $4,100 per ounce.

After the price pullback, fund flows offered a clearer read on market sentiment. China's gold ETFs continued to attract net inflows of 11 tonnes in September, equivalent to about RMB 11 billion, lifting month-end total holdings to 304 tonnes, a record high. Cumulative net inflows in Q3 were about $3.9 billion, total holdings rose by 27 tonnes, and total assets under management increased by 13%. Although the September decline in gold prices pushed total AUM down 2% to RMB 276 billion, sustained inflows showed that some investors continued to use gold ETFs to diversify portfolios amid weak local equity markets and falling bond yields. Falling government bond yields reduced the opportunity cost of holding gold, while official gold-buying announcements provided a sentiment boost. Positive inflows in Q3 offset the outflows in Q2, and year-to-date net inflows are poised to hit a record. In early October, local equity markets remained weak, and investor demand for diversification persisted.

The futures market showed signs of cooling. Average daily gold trading volume on the Shanghai Futures Exchange fell to 360 tonnes in September, down 9% month on month. Net long positions of the top 20 members fell by 5 tonnes to 149 tonnes from the end of August, indicating that lower gold prices and volatility had weakened short-term trading sentiment. However, overall Q3 trading volume still rose 18% and net long positions increased 59%, with the August gold price rally providing 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 investor dip-buying drove a seasonal rebound at the wholesale level. However, Q3 wholesale gold demand fell 21% year on year to 234 tonnes, 44% below the 10-year average of 418 tonnes, with jewellery consumption remaining the main drag.

Central bank gold purchases 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. Cumulative additions in Q3 were 63 tonnes, while year-to-date purchases reached 103 tonnes. Affected by a decline in foreign exchange assets, China's total reserves fell 2% in the month to $3.8 trillion. With the traditional Q4 peak season approaching, jewellery sales still face constraints from weak consumer confidence and affordability.