Observations of Gold market in Hong Kong and Mainland China

Good morning everyone! It is a great honor for me to be here with all of the experts and
distinguished guests to talk about the present and future of the precious metals market.
I am Zhang Chengdong, from Bank of China (Hong Kong). Although Bank of China
(Hong Kong) has been in the precious metal market for a long time, this is the first time
for us to be here.

When talking about Bank of China (Hong Kong), you might think of RMB clearing
bank, Hong Kong dollar Note-issuing bank. Actually, we have a fairly long history of
carrying out gold business. Po Sang Bank, part of Bank of China (Hong Kong), is a
member of the CGSE(Chinese Gold & Silver Exchange香港金銀業貿易場) and a
member of the Standard Gold Bar Group of the CGSE. It is also one of the Accredited
Refineries and occupies a very important position in the Hong Kong and international
gold markets, which used to be called the "Gold Bank". And nowadays, the structure
of the gold market is facing an unprecedented wave of changes, such as gold demand
patterns, regulatory requirements, the emergence of new players and various
innovations.

As one of the active players in the market, I would like to share some of the observations
in the precious metal market, especially the Gold Market in mainland China and Hong
Kong.

First of all, the demand of gold products keeps increasing and the product variety has
been constantly diversified, especially to the retail market. The categories of the gold
products can be classified in physical, gold asset mgt, gold derivatives and etc.
according to china gold association data, China’s gold consumption rose 8.78% year
over year to 1089.69 metric tons in 2023. sales of gold jewelry rose 7.97% to 706.48
metric tons in 2023, while sales of gold coins and bars rose 15.7% to 299.60 metric
tons. data from the ministry of commerce showed that during this year’s lunar new year
holiday period sales of gold and silver jewelry increased by 24% compared with last
year. I am sure you have heard the stories about China’s Physical Gold Buying Aunties,
now young generations start to show great interests as well, especially in gold ETFs,
paper gold, tokenized gold, and gold jewelry.

A key factor behind the economic fluctuations in 2023 was that consumers were
unwilling to spend. A survey conducted by the people’s bank of china showed that
throughout 2023, the savings willingness of local depositors hovered near historical
highs. Combined with low consumer confidence, savings growth continued to
significantly outpace lending for the second consecutive year. while the covid-19
pandemic may have ended in 2022, its long shadow impacted consumer behavior in
2023: domestic consumption was weaker than expected , and inflation hovered around
zero for most of the year. in addition, due to weak stock market and the troubled
property market, both are traditionally popular investment options in china, lots
Chinese local investors are increasingly turning to gold market. in 2023, Chinese gold
etfs attracted 50billion yuan (usd 6.54 billion) in inflows, leading global capital inflow.
By the end of 2023, the total assets under management reached 290billion yuan (usd 40
billion), the highest level on record in renminbi terms. Holdings increased by 10 tons
to 61.5 tons. Meanwhile, as the market is facing higher volatilities with uncertainties,
many global investors/ sovereign names start to increase the portion of gold in their
investment portfolio.

Secondly, the gold pricing mechanism has been changed. In the old days, the price of
gold usually demonstrated inverse relationship with the usd, which usually means a
stronger greenback will lead to lower gold prices, and vice versa. however, this
correlation seems to have broken over the past 18 months when gold prices have been
rising, despite the US dollar remaining relatively range bound. this year, the relationship
between gold and US dollar has evolved even further, with gold and the US dollar
starting to move in the same direction.

There are many reasons behind, geopolitical concern, fiscal expansion in the us, and
the upcoming election. However, another important reason is, the structure of the
market participants has been changed. Nowadays, Asian countries have invested in all
parts of the value chain, from production to smelting and processing, the efficiency and
transaction volumes have been enhanced. The variety of the participants have been
increased, which includes hedge funds, algorithm and high-frequency trading. The
direct interaction between retail investors and wholesale markets has been increased.

As I have just mentioned previously, many investors have taken the macro backdrops
of uncertainties into consideration. Because gold retains its value in times of
uncertainties, that is why there is rising demands despite the higher interest rate and
stronger dollar index.

Thirdly, new technology keeps changing the business model and reduces the
compliance risks. Technological innovation plays more important role. There is no
exception for the whole value chain of gold business. in the downstream of the gold
industry chain, enterprise are changing the participation methods of practitioners and
consumer habits through innovation. For example, some company has developed the
precious metal industry interconnection platform, which has digitized the entire value
chain from raw material design to gold recycling, allowing ordinary consumers to
participate in customized gold jewelry design through the online platform, and quickly
sell their gold to obtain cash liquidity.

Blockchain technology, in particular, promises to provide a more robust, viable and

cost-effective mechanism to facilitate the settlement of gold transactions. It will
eliminate settlement risks and help to track gold from "gold mines to consumers". It can
make the gold market more transparent and efficient, eliminating various risks.

Green transformation has become one of the important long-term development goals
for gold mining enterprises in china. Various measures have been taken actively to
control dust and noise, utilize waste rock for road construction and underground
backfilling, carried out land reclamation to reduce the impact on the ecological
environment and achieved almost 100% recycling of wastewater at the ore processing
plant. The industry has been focusing more on green and sustainable practices.

I am sure with the support and collaboration between SBMA as well as other regional
precious metal associations, we can continuously connect and share best practices
among the region.

Finally, I would like to wish the conference a great success and all the participants a
memorable time in Singapore. Thank you!