UBS: Gold demand from China will continue.

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

Affected by the risk of spillover from the Middle East conflict, a worsening of the global macro outlook, and expectations for a weaker U.S. dollar, respondents’ overall sentiment is cautious. However, almost everyone is consistent in their upside expectations for gold’s medium- to long-term trajectory. The firm noted that, “Most, or even all, of the conversations we had show an upward bias in terms of gold prices’ medium- to long-term outlook.”

Macro concerns become a catalyst for gold demand

The report shows that China’s market participants are highly alert to the impact of developments in the Middle East. Overall sentiment is quite pessimistic.

Respondents generally believe that the negative shocks to the global macro outlook have already been digested to a large extent. Even if a de-escalation window appears between the United States and Iran, it is still unlikely to fundamentally change this judgment in the short term.

Most respondents take a cautious view of the U.S. outlook, with their focus on the risk of stagflation and expectations for a weaker dollar. Meanwhile, they are skeptical about the rapid repricing of rate hikes by global central banks, and they are more inclined to focus on the real impact on economic growth from high energy prices and geopolitical uncertainty.

And these multiple concerns about growth, inflation, and geopolitics are the underlying logic behind China’s market continuing to be bullish on gold.

Institutional demand accelerates

Changes on the demand side are not only driven by sentiment; structural factors are also pushing institutional capital to enter.

UBS has identified three main driving threads:

First, adjustments to tax rules. The new rules introduced last year continue to exempt investment gold from tax, while also increasing the tax cost of jewelry gold.

As reported by the Shanghai Securities News, the Ministry of Finance and the State Taxation Administration jointly issued an announcement regarding gold-related tax policies. The relevant rules take effect from November 1, 2025 and run through December 31, 2027. The new policy specifies that standard gold traded through the Shanghai Gold Exchange and the Shanghai Futures Exchange will continue to be exempt from VAT.

Second, banks’ accumulation plans expand. Banks are massively promoting gold accumulation plans through electronic platforms, with coverage continuing to expand and the participation threshold on the retail end further lowering.

Third, insurance companies pilot at a faster pace. 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 begun active deployment.

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

UBS believes that the current deployments by insurance companies are still at an early stage, “still some distance away from full allocation.”

Medium-sized insurance companies with higher risk appetite and some institutions are expected to be the most active participants in the near term. For insurance companies that have remained relatively on the sidelines up to now, the two main obstacles are a 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 on the AUM proportion of investable gold. Once the above policies are implemented, it will open up more room for gold demand.

Short-term volatility does not shake medium- to long-term confidence

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

UBS said, “In almost every conversation we have held in China, we cover various reasons behind pressure on gold prices.” Market participants are clearly reexamining underlying assumptions and long-term outlooks; “tension in sentiment is evident.”

The core question is: at the current price level, is it already an attractive time to enter, or is there still room to wait patiently?

Even so, UBS maintains a constructive view of the overall outlook for the second quarter, especially on the premise that gold prices stabilize and domestic premiums remain in place. There are also no obvious bottlenecks on the supply side at present, and the acquisition of import quotas and licenses is relatively smooth.