• Retail demand for physical gold has slowed in China, Bloomberg reports.

• Sales fell from an April peak of 44% year-over-year, to 24% in May.

• But gold should maintain an elevated level due to its safe haven and reserve asset reputation.

China's gold demand is starting to ease as the country's economic sluggishness ripples into the sector, Bloomberg reported.

Where sales of gold and silver jewelry rose rapidly in early 2023, they expanded only 24% year-on-year in May, the first sign of a slowdown this year.

Alongside India, the nation leads as the largest consumer of physical gold bars, jewelry and coins, the outlet said. After the country lifted pandemic restrictions at the end of last year, pent-up demand led to a surge in the sales, climbing 37% and 44% in March and April.

May's cooldown runs alongside similar trends throughout China, as its economic growth has been fizzling out after a strong first-quarter performance. That month saw industrial output, retail and investment decelerate sharply from April, while unemployment among those age 16 to 24 reached record highs.

Beijing has responded to slowing economic activity with plans for direct stimulus, while the country's central bank introduced the first interest rate cuts since August, as a way to encourage spending.

Still, demand for the commodity is expected to weaken further in June. The Shanghai gold price now trades at a discount to the international rate, Bloomberg reported, citing data from the World Gold Council.

While earlier Chinese demand for the yellow metal helped support a record high of over $2,000 an ounce, gold still stands at around $1,935. Despite slowing retail sales, the safe-haven asset is likely to maintain an elevated level thanks to geopolitical tensions and recessionary fears.

Meanwhile, foreign central banks are also likely to support the higher price, as they have been stockpiling the reserve asset at significantly high levels over the past few quarters. This follows as countries are looking to ease their dollar dependence, having seen the effect of dollar sanctions on Russia.

China is no exception. Its central bank holds 2,092 tons of gold, having amassed 160 tons in the past seven months.

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