Markets stayed calm after the July 24 deadline, with oil prices and US interest rates continuing to shape gold’s outlook.
China’s decision to end some leveraged gold trading services for retail investors fuelled speculation that gold prices would surge after July 24. Social media was flooded with claims that Beijing was banning “paper gold”, forcing investors into physical bullion and setting the stage for a sharp rally.
The market told a different story.
Gold prices remained broadly stable after the deadline, showing that the changes were far less dramatic than many expected. While China continues to be one of the world’s largest gold consumers, the global market is still driven primarily by factors such as US interest rates, oil prices, the strength of the dollar, and overall investment demand.
What Actually Changed?
The July 24 deadline marked the end of certain precious metals trading services offered by major Chinese banks, including the Industrial and Commercial Bank of China (ICBC). The products affected were mainly leveraged gold and silver contracts linked to the Shanghai Gold Exchange, allowing retail investors to trade using borrowed funds.
Other lenders, including Postal Savings Bank of China, Ping An Bank and China Guangfa Bank, had already begun withdrawing similar products or tightening trading requirements.
The move was aimed at reducing risks associated with highly leveraged retail trading after gold experienced sharp price swings this year.
Crucially, China did not ban gold investment.
Investors can still buy physical gold bars and coins, invest through gold-backed exchange-traded funds (ETFs), participate in gold savings plans and trade gold futures on regulated exchanges. The Shanghai Gold Exchange also continues to operate as normal.
Why Didn’t Gold Prices Surge?
The biggest reason is that the market had already priced in the changes.
ICBC announced its decision a month before the deadline, giving customers time to close positions, sell holdings, or arrange physical delivery. Other banks had also begun reducing similar services well before July 24.
More importantly, the affected products represented only a small portion of China’s overall gold market and an even smaller share of global trading.
Instead, investors remained focused on much larger forces influencing bullion prices.
Oil prices, expectations surrounding future US Federal Reserve interest rate decisions, bond yields and the US dollar continued to have a much greater impact on gold than the changes taking place within China’s retail banking sector.
Because gold does not generate interest, higher bond yields and rising interest rates generally reduce its appeal compared with income-producing assets.
China’s Physical Gold Demand Remains Strong
Although banks reduced leveraged trading, demand for physical gold in China has remained healthy.
According to World Gold Council data based on Chinese customs figures, the country imported around 173 tonnes of gold in June, the highest monthly total since March 2024 and the third consecutive monthly increase.
The People’s Bank of China also continued adding to its gold reserves, purchasing around 14.9 tonnes during June and extending its buying streak to 20 consecutive months.
These purchases reflect continued confidence in physical gold, helped by lower international prices and a stronger yuan, which made imports more attractive.
However, they do not indicate that investors were forced to buy physical bullion due to the banking changes.
What Will Shape Gold Prices Next?
China’s physical demand can provide important support during periods of weaker prices, but it is unlikely to determine the market’s direction on its own.
Analysts continue to point to several larger drivers, including Federal Reserve policy, global inflation expectations, oil prices, geopolitical tensions and investment flows into gold ETFs and futures markets.
Physical buying from China and central banks may help limit downside risks, but a sustained rally would likely require broader participation from institutional and private investors worldwide.
Outlook
China’s latest measures represent a tightening of leveraged retail trading rather than a ban on gold investment.
The subdued market reaction after July 24 showed that investors were already prepared for the changes and remained focused on the broader economic picture.
For now, the outlook for gold will continue to depend less on China’s banking rules and far more on interest rates, energy markets, investor sentiment and global geopolitical developments.
Read more news and follow us on Instagram
Supplied
