Gold prices experienced a modest decline in May, marking a shift in investor sentiment and pausing the bullish momentum that had defined the early part of 2025. The pullback in physical and investment demand comes amid a seasonal lull in wholesale activity and improving risk appetite among Chinese investors.
Gold Rally Pauses After Strong Start to 2025
After five consecutive months of gains, the Shanghai Gold Benchmark Price (SHAUPM) ended its upward streak in May, reflecting broader market softness. Similarly, the LBMA Gold Price PM posted its first monthly decline after four months of growth. A cooling in gold ETF flows and declining implied volatility weighed on prices, even as the U.S. dollar weakened during the month.
In local terms, the Chinese yuan’s appreciation against the dollar further dampened gold price performance in RMB. Despite May’s weakness, gold has still posted strong year-to-date returns, with the SHAUPM rising 23% in RMB and the LBMA Gold Price PM gaining 17% in USD through the first five months of 2025.
Seasonal Weakness Hits Wholesale Gold Demand
Wholesale gold demand in China declined sharply in May, with withdrawals from the Shanghai Gold Exchange (SGE) falling 35% month-over-month to 99 tonnes. This drop aligns with typical seasonal patterns, as gold consumption tends to slow during the second quarter and early third quarter, reducing restocking demand from manufacturers.
The decline was also attributed to weakening investor interest in bullion, amid easing U.S.-China trade tensions and a less favorable price environment. Although May withdrawals were 21% higher year-on-year compared to the subdued levels of 2024, they remained below the 10-year average.
High gold prices, while supportive of investment, have continued to suppress gold jewelry sales—a major driver of SGE activity—thereby dampening overall wholesale demand.
Chinese Gold ETFs See First Outflows in Four Months
Chinese gold ETFs recorded net outflows in May, totaling RMB 3.3 billion (approximately USD 461 million), ending a three-month streak of net inflows. Total assets under management fell 4% month-on-month to RMB 153 billion (USD 21 billion), while holdings declined by 4.6 tonnes to 198 tonnes.
Improved market sentiment was a key factor behind the outflows. A temporary easing in U.S.-China trade tensions boosted risk appetite, lifting equities and reducing the perceived need for safe-haven assets. A weakening gold price also contributed to the pullback in ETF interest.
Nonetheless, gold ETF demand remains robust on a year-to-date basis. Inflows have reached RMB 63 billion (USD 8.6 billion), and holdings have surged by 84 tonnes—levels not previously seen during the same period in past years.
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