UBS: Gold demand from China will continue

```

The latest report from UBS's precious metals team shows that UBS recently had in-depth discussions with several market participants in China, concluding that the demand for gold from China is highly likely to persist.

Affected by spillover risks from the Middle East conflict, deteriorating global macro outlook, and expectations of a weaker US dollar, the overall sentiment among interviewees is cautious. However, nearly all hold an upward outlook for gold in the medium to long term. UBS points out, "Most, if not all, of our conversations showed an upward bias toward the long-term trend of gold prices."

Macroeconomic Concerns Catalyze Gold Demand

The report shows that Chinese market participants are highly vigilant about the impact of the Middle East situation, and the overall sentiment is quite pessimistic.

Interviewees generally believe that the negative shocks to the global macro outlook have largely been absorbed. Even if there is a window for easing between the US and Iran, this judgment is unlikely to fundamentally change in the short term.

Most interviewees hold a cautious attitude toward the US outlook, with a focus on stagflation risks and a weaker dollar. Meanwhile, they are skeptical about rapid rate hikes by global central banks and instead focus on the real economic impact of high energy prices and geopolitical uncertainty.

These multiple concerns about growth, inflation, and geopolitics are the underlying logic behind the Chinese market's continued bullishness on gold.

Institutional Demand Accelerates

The changes on the demand side come not only from sentiment, but structural factors are also driving institutional funds into the market.

UBS has identified three main driving factors:

First, adjustment to tax regulations. The new regulation issued last year continues to exempt investment gold from tax, while increasing the tax cost of jewelry gold.

According to Shanghai Securities News, the Ministry of Finance and the State Administration of Taxation issued a joint announcement on gold-related tax policies. The relevant rules will take effect from November 1, 2025 and be implemented until December 31, 2027. The new policy stipulates that standard gold traded through the Shanghai Gold Exchange and Shanghai Futures Exchange will continue to be exempt from VAT.

Second, expansion of bank accumulation plans. Banks are extensively promoting gold accumulation plans through electronic platforms, continuing to expand coverage and further lowering retail participation thresholds.

Third, accelerated pilot program by insurance companies. This is the most noteworthy incremental information in the report. Currently, among insurance companies participating in the pilot program, which are allowed to invest up to 1% of asset management scale (AUM) in gold, about half have already begun to actively deploy positions.

The trading activities of these insurance companies will be reflected in the trading volumes of the Shanghai Gold Exchange (SGE), "because these are the products they are allowed to trade." Data confirms this judgement—SGE trading volume has noticeably increased over the past few weeks.

UBS believes the current deployment by insurance companies is still at an early stage, "there is still a considerable distance from full allocation."

Medium-sized insurance companies with higher risk appetites and some institutions are expected to be the most active participants in the near term. For those insurance companies who remain cautious, lack of professional knowledge and the fact that gold does not generate yield are the two main obstacles.

In the long term, upside risks may come from two directions: first, expanding the pilot program to more sectors or other categories; second, increasing the upper limit of the proportion of AUM that can be invested in gold. Once these policies are implemented, they will open up greater space for gold demand.

Short-Term Volatility Does Not Shake Medium and Long-Term Confidence

It is noteworthy that the sharp correction in gold prices at the end of February and the continued weakness in March triggered a certain degree of concern in the Chinese market.

UBS stated, "Almost every conversation we had in China involved various reasons for gold prices being under pressure," and market participants are clearly re-examining their underlying assumptions and long-term outlook, "the tension is obvious."

The core issue is: is the current price level already an attractive entry point, or is there still room to wait patiently?

Nevertheless, UBS maintains a constructive view of the overall outlook for the second quarter, especially on the premise of stable gold prices and sustained domestic premiums. There is currently no obvious bottleneck on the supply side, and obtaining import quotas and licenses is relatively smooth.

Risk Warning and DisclaimerThe market is risky, investment needs to be cautious. This article does not constitute personal investment advice and has not considered the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at your own risk. ```