20 Oct 2025
Global markets are experiencing significant shifts, highlighted by China's ongoing economic struggles despite supportive policies and a protracted real estate recession. Concurrently, gold, a high-performing asset, saw recent volatility influenced by reduced US-China tensions and investor confidence.
Initial forecasts for China's economy anticipated a contraction in GDP and slow growth in industrial production and retail sales, primarily due to an expected slowdown in investment and weak domestic demand.
Fixed investments in China have remained unchanged over the past nine months, showing a downward trend despite government efforts to boost local spending. Public expenditure on infrastructure projects has failed to offset declines in housing investment and manufacturing slowdown, compounded by a 13% retreat in foreign direct investment over eight months due to US-China tensions, rendering the economy fragile.
China's housing market is experiencing a significant downturn, marked by the largest decline in house prices in 11 months, with this four-year recession exerting pressure on the national economy. This sustained recession, despite ongoing supportive policies, has negatively impacted Q3 economic growth, pushing it to its lowest level in a year and weakening overall domestic economic sentiment.
While China maintains its annual growth target, claiming progress through robust exports, its economic expansion faces hurdles including persistent negative inflation, intense corporate competition reducing profits, and critically, weak domestic demand that negatively impacts GDP. Recent external demand weakness, stemming from US-China tensions, further exacerbates the situation, as alternative markets cannot fully compensate for the vital role of the US market.
A rare contraction in investment, particularly in the real estate sector, reflects pervasive weak economic sentiment, with capital spending on infrastructure and manufacturing also slowing significantly; infrastructure investment growth was only 1.1%, the worst for this period since 2020. China's supportive policies have yet to successfully address the negative inflation, but an NBES spokesperson indicated that counter-cyclical policies would be intensified and optimized to boost domestic demand, internal circulation, and sustainable growth.
China has maintained its interest rates, specifically keeping its reverse repo rate (primary policy rate) at approximately 1.4%, signaling a shift from rate cuts to alternative stimulus measures. Investors are closely monitoring an upcoming Plenum meeting this week, expecting it to provide strategic insights and potential signals, even though the full 15th Five-Year Plan might not be finalized until March.
Gold has emerged as a high-performing asset with an uninterrupted upward trend, benefiting developing countries, producers, and buyers, thereby bolstering investor confidence. This is evidenced by nearly threefold increases in shares of South African mining companies and an improved credit rating for Ghana, Africa's largest gold producer, while developing nations' gold purchases strengthen national treasuries.
Last week, precious metals experienced a sharp decline, with gold falling by approximately 1.7% on Friday—its largest daily drop since May—and silver dropping about 4% before a slight recovery. This volatility was primarily driven by reduced US-China trade tensions, which improved market sentiment, decreased uncertainty, and lessened demand for safe-haven assets.
The reduction in demand for safe-haven assets like gold and silver was fueled by signs of progress in US-China trade negotiations, alongside an easing of concerns over risky lending by US regional banks. Despite this recent decline, gold has grown over 60% and silver over 80% this year, largely due to macroeconomic factors, geopolitical tensions, and ongoing demand for secure investments, with analysts predicting gold could reach $5000/ounce by 2026, supported by institutional investment and potential Fed rate cuts.
No immediate significant news regarding negotiation outcomes is expected, but investors are awaiting the Consumer Price Index (CPI) data at the end of the week.
The protracted recession in China's housing market profoundly impacts domestic economic sentiment, overriding the positive influence of robust exports.
| Economic Area | Key Trend/Issue | Impact/Consequence | Policy/Outlook |
|---|---|---|---|
| China's Real Estate Market | Four-year recession; largest house price drop in 11 months. | Pressuring national economy, weakest Q3 growth in a year, dampened domestic sentiment. | Supportive policies are in place, but the recession persists. |
| China's Overall Economy | Persistent negative inflation, weak domestic demand, intense corporate competition, declining FDI. | GDP growth constrained, investment contraction, economic fragility exacerbated by US-China tensions. | Annual growth target maintained; counter-cyclical policies intensified to boost demand. |
| Global Gold Market | Uninterrupted upward trend, high performance; recent sharp decline. | Boosted investor confidence, strengthened national treasuries, increased volatility due to reduced geopolitical tensions. | Long-term forecast of $5000/ounce by 2026, supported by institutional demand and potential rate cuts. |
| Monetary Policy & Geopolitics | China's stable interest rates; US-China trade tensions easing. | China stimulates economy via non-rate-cut methods; reduced demand for safe-haven assets (gold/silver). | China committed to supportive policies; investors await Plenum meeting decisions and CPI data. |
