UBS: Gold demand from China will continue.

UBS’s latest report from its precious metals team shows that UBS has recently held in-depth discussions with multiple market participants in China. The conclusion is that Chinese gold demand will most likely continue.

Driven by the spillover risk from the Middle East conflict, worsening global macro outlook, and expectations for a weaker U.S. dollar, respondents’ overall sentiment is relatively cautious. However, their outlooks for gold’s medium- to long-term trend are almost一致 in expecting an upward move. The firm noted that “most, if not all, of the conversations we had showed an upward bias in views on gold prices’ medium- to long-term trajectory.”

Macro concerns as a catalyst for gold demand

The report shows that China’s market participants are highly alert to the potential impact of the Middle East situation and overall sentiment is quite pessimistic.

Respondents generally believe that the negative macro shocks have already been digested to a large extent. Even if a window of easing emerges between the United States and Iran, in the short term it is still unlikely to fundamentally change this assessment.

Most respondents take a cautious view of the U.S. outlook, focusing on the risk of stagflation and expectations for a weaker dollar. At the same time, they are skeptical about the global central banks’ rapid repricing of interest rate hikes and are more inclined to focus on the real economic-growth impact of high energy prices and geopolitical uncertainty.

These multiple concerns about growth, inflation, and geopolitics are precisely the underlying logic behind China’s market’s sustained bullish stance on gold.

Institutional demand accelerating release

Changes on the demand side come not only from sentiment, but also from structural factors that are pushing institutional capital to enter the market.

UBS identified three main driving threads:

First, adjustments to tax rules. A new regulation introduced last year continues to exempt investment gold from taxes while increasing the tax cost of jewelry gold.

According to a report by Shanghai Securities News, the Ministry of Finance and the State Taxation Administration previously jointly issued an announcement regarding gold-related tax policies. The relevant rules took effect on November 1, 2025, and will run through December 31, 2027. The new policy provides that standard gold traded through the Shanghai Gold Exchange and the Shanghai Futures Exchange continues to be exempt from value-added tax.

Second, bank accumulation plans expand. Banks are promoting gold accumulation plans on a large scale through electronic platforms, with coverage continuing to expand and participation thresholds on the retail side further lowered.

Third, insurance companies’ pilot programs speed up. This is the most noteworthy incremental information in the report. Currently, among the insurance companies participating in the pilot and allowed to invest up to 1% of their asset management scale (AUM) in gold, about half have already started active deployment.

The trading activities of these insurance companies will be reflected in the trading volume of the Shanghai Gold Exchange (SGE), “because these are the products they are allowed to trade.” The data confirms this view—SGE trading volume has shown a clear increase over the past few weeks.

UBS believes that the current deployment by insurance companies is still in an early stage, “and there is still a considerable distance before fully allocating.”

Mid-sized insurance companies with relatively high risk appetite and some institutions are expected to be the most active participants in the near term. For insurance companies that have remained more cautious so far, two major obstacles are lack of professional knowledge and the fact that gold does not generate returns.

From a long-term perspective, upside risks come from two directions: first, expanding the pilot to more industries or other segments; second, raising the upper limit of the AUM proportion for investable gold. Once the above policies are implemented, it will open up more room for gold demand.

Short-term volatility doesn’t shake medium- to long-term confidence

It is worth noting that the sharp pullback in gold prices at the end of February and the continued weakness in March have raised some concern in China’s market.

UBS said, “In almost every conversation we have in China, we deal with various reasons for pressure on gold prices.” Market participants are clearly reexamining underlying assumptions and long-term outlooks, “and nervous sentiment is evident.”

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

Even so, UBS maintains a constructive view on the overall outlook for the second quarter, especially if gold prices stabilize and the domestic premium remains. On the supply side, there is also currently no obvious bottleneck, and obtaining import quotas and licenses is relatively smooth.

Risk disclosure and disclaimer terms

        The market involves risk; investment requires caution. This article does not constitute personal investment advice, and it does not take into account any specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article align with their specific circumstances. Invest at your own risk and responsibility.