Gold delivered strong performance in 2023. Due to geopolitical risks, substantial central bank purchases, and growing expectations that major central banks would cut interest rates, gold – in U.S. dollars – achieved a 14% return.
 

The SHAUPM

The Shanghai Gold Benchmark Price PM (SHAUPM) in Renminbi (RMB – the official name of the currency of the People’s Republic of China) rose by 17% over the year, outperforming all major local assets (see the chart below). This strong growth in the RMB gold price compared to its USD counterpart was primarily the result of a weaker local currency. Both benchmarks recorded their highest daily close on December 28, 2023.
 

Gold Withdrawals from the SGE

Gold withdrawals from the Shanghai Gold Exchange (SGE) totaled 1,687 tons in 2023. This represents a 7% year-on-year increase and is 3% above the five-year average (see the chart below). This recovery was mainly due to the relatively low base in 2022, China’s economic recovery in 2023, and the growing appeal of gold throughout the year.
 

Gold in Demand in 2023

Gold was highly sought after in 2023. The performance of gold prices and the strong purchases by both local and global central banks led to extensive coverage by local media. Additionally, gold’s attractiveness was further enhanced by households’ growing need to preserve value amidst high inflation.
 

Gold Purchases by the People’s Bank of China

The People’s Bank of China (PBoC) reported continuous gold purchases throughout 2023, increasing total gold reserves by 225 tons to reach 2,235 tons by the end of the year. Gold now accounts for 4.3% of the country’s official foreign exchange reserves.
 

 
The gold price premium between Shanghai and London surged in 2023, reaching an annual average of 1.5% – the highest in history. On a monthly basis, September saw the largest premium at 3.9%. The daily record was set on September 14, 2023, when the local gold price premium reached 6.4%.
 

Conclusion

Despite disappointing performance from major local assets in China, the SHAUPM in RMB rose by 17% in 2023. Total gold withdrawals from the SGE reached 1,687 tons, marking a 7% year-on-year increase. The PBoC increased its gold reserves by 225 tons in 2023, bringing the total to 2,235 tons. As a result of robust gold demand, stable production, and reduced imports following the end of 2022, the local gold price premium soared to record levels in 2023.
 
Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be considered as such. Past performance is no guarantee of future results.