China, which recently played a pivotal role in driving gold prices to unprecedented levels, has abruptly reversed its course by offloading significant holdings—triggering a sharp decline in the precious metal’s value. This dramatic shift from aggressive accumulation to near-record selling has had a ripple effect across global markets.
For weeks, China had been a dominant buyer of gold, pushing prices to historic highs. Spot gold prices briefly surged to an all-time record of $3,500, fueled by massive inflows into Chinese gold exchange-traded funds (ETFs), particularly the Huaan Yifu, Bosera, and Guotai gold ETFs. Demand appeared insatiable, with the Asian giant seemingly at the forefront of a global gold rush.
However, that bullish trend didn’t last long. As is often the case with momentum-based trading patterns in China, the rapid ascent quickly reversed. In what analysts described as a whiplash-inducing turnaround, China began liquidating gold holdings ahead of the Labor Day holiday, abruptly ending its recent buying spree.
“China liquidated what it bought last week ahead of the Labor Day holiday,” explained Goldman Sachs commodity trader Adam Gillard. As a result, “total onshore positioning [is] now 5% off the all-time high (ATH).” Despite the pullback, Gillard noted that China’s influence on global gold markets remains potent. “China’s share of total open interest remains on the highs at ~40%, [but] upward momentum may have peaked for the time being,” he added.
The rollercoaster ride of Chinese gold activity can be captured in a series of key market movements over the past several days. On Tuesday, April 22, gold reached its ATH when China added a staggering 1.2 million ounces in positioning across the Shanghai Gold Exchange (SGE) and the Shanghai Futures Exchange (SHFE), setting a record volume in the process. The bullish surge pushed gold to dizzying heights and sparked buying frenzies across multiple platforms.
But just days later, China reversed nearly the entire April 22 buying spree by selling off close to 1 million ounces across SHFE and SGE, marking one of the largest single-day liquidations on record. This substantial sell-off came seemingly out of nowhere, catching traders and analysts off guard. The result was a dramatic reversal in gold prices, which have now dropped significantly from their recent highs.
Interestingly, Chinese ETFs such as the Huaan Yifu, Bosera, and Guotai remained largely unchanged during the liquidation wave, indicating that the sell-off was concentrated in futures and spot markets rather than institutional holdings.
Following this sudden unloading, total Chinese gold positioning is now approximately 5% below its peak, eroding much of the gains made during the April rally. The speculative import arbitrage—the difference between paper gold prices and physical import costs—has also declined by about $20 per ounce from its highs, suggesting cooling interest in speculative trading.
According to Gillard, the timing of China’s trading activity plays a crucial role in the magnitude of its impact. He pointed out that recent price moves are occurring “exclusively around the time China opens,” reflecting the powerful influence of Chinese market hours on global gold pricing. This is especially true during the Asian morning sessions, which tend to be less liquid than other global trading periods.
Because China conducts a large portion of its gold trading during these relatively illiquid times, it has an outsized effect on prices. “China is having a disproportionate impact on price because they execute during an illiquid part of the day (Asia morning) which likely triggers ex-China CTA [commodity trading advisor] trading signals,” said Gillard. As these signals are triggered, automated trading systems and institutional investors respond, amplifying market movements.
The impact of China’s rapid reversal has already manifested in declining prices. “Gold is dumping in early Asian trading to the lowest level in 2 weeks,” Gillard reported, highlighting the speed and severity of the downturn.
This dramatic turnaround underscores the volatile nature of commodity markets, particularly when driven by large, concentrated players like China. It also raises questions about the sustainability of recent price trends, as momentum-driven rallies can reverse quickly once investor sentiment shifts.
Analysts note that China’s gold behavior is not unprecedented but follows a familiar pattern of aggressive accumulation followed by rapid liquidation. The recent events mirror past trading cycles in Chinese markets, where sentiment and positioning can swing sharply in response to domestic holidays, policy cues, or shifting risk appetites.
Although China’s overall interest in gold remains high, the current liquidation phase suggests a more cautious approach going forward. With the Chinese share of global open interest still hovering around 40%, any future moves by Chinese traders will likely continue to exert a powerful influence on global prices.
The events of the past week serve as a stark reminder of how quickly market dynamics can change. Just a week ago, China was seen as the driving force behind a record-setting gold rally. Now, its actions are being blamed for dragging the market lower.
For investors, the key takeaway is clear: while Chinese buying can propel markets upward, its sudden withdrawals can just as easily send them tumbling. As such, understanding China’s trading behavior—and its timing—has become essential for anyone navigating the gold markets today.
In sum, the brief but intense surge in Chinese gold buying has given way to an equally swift retreat. Although ETFs remain steady and the overall Chinese presence in the gold market is still considerable, the momentum appears to have stalled—at least for now.
As Adam Gillard summed it up, “Upward momentum may have peaked for the time being,” offering a sobering conclusion to what was, just days ago, an exuberant gold rush driven by the world’s second-largest economy.
