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Investors lured by the promise of golden returns

2024-04-19 HKT 11:39
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  • Gold is proving attractive once more to investors. Photo: Shutterstock
    Gold is proving attractive once more to investors. Photo: Shutterstock
World Gold Council's John Reade spoke to Chloe Feng
When Vincent Yuan, a resident of Hebei province on the mainland, wanted to get something nice for his wife, he bought a piece of golden gourd jewellery, spending about 28,000 yuan at a local jewellery shop.

There was also some strategic thinking behind the 35-year-old general manager’s decision, adding he bought the jewellery because he believes there’s real value to be gained from investing in the precious yellow metal.

“People like buying stuff which sees its value go up and not down, so if prices keep going up, we’ll of course buy more, and vice versa, if prices go down, then we won’t buy.”

“Gold is like a go-to preference for Chinese people,” he added.

His wife, Catrina Xu, 30, is also a fan of gold jewellery.

On a trip to Hong Kong last year, the only souvenir Xu purchased were gold items — a bracelet from a jewellery store in Tsim Sha Tsui and a necklace when she visited Hong Kong Disneyland.

“Since then, prices have gone up a lot over the past nine months,” she noted.

The pair were among thousands of mainland Chinese shoppers who see the precious metal as a safe-haven investment to hedge against devaluation amid economic uncertainties as property prices in the country fall and its stock markets slump.

Since December last year, retail prices for gold from China’s major brands have risen 21 percent to a multi-year high of over 730 yuan (US$100) per gram as of April 12, from the 600 yuan (US$82) range seen in December.

In New York, bullion prices notched another record close on April 15, with the most-active June contract for gold futures settling at US$2,383 per ounce.

“I have been surprised by the strength in gold that we've seen since the start of 2024,” said John Reade, chief market strategist at the World Gold Council.

The bullion veteran said while the Chinese retail buying spree had been a major contributor to the global gold price spikes, other drivers included tensions in the Middle East, and speculative buyers on the Comex futures market in New York, which lifted prices higher over the past six weeks.

Comex is the leading platform for trading futures contracts on precious and base metals, such as gold, silver, and copper.

“This is very much an emerging market phenomena led by China - together with speculative buying [on Comex].”

“As has been the incredible purchases by central banks, which has been going on for nearly two years now," Reade said, noting that global central banks had ramped up their gold purchases in 2022 and 2023, to diversify their foreign reserves and reduce their dependency on US dollars.

According to the council's 2023 annual report, about one fourth of global central banks intend to increase their holdings of gold this year.

The People’s Bank of China, in particular, regained the crown for the largest single gold buyer in 2023, as it reported a total rise of 225 tonnes in its gold reserves over the year, marking its highest level of annual buying since at least 1977.

“And all the indications are that it’s continued,” Reade added.

American bank Citi on Tuesday forecast that gold is set to reach US$3,000 an ounce over the next six to 18 months.

The lender noted the start of US Federal Reserve interest rate cuts - or a potential recession - would further drive demand for gold.

Another financial giant, Goldman Sachs, last Friday referred to the “unshakeable bull market” in gold and upgraded its price target for the precious metal to US$2,700 an ounce by the end of this year.

“We would expect gold to benefit from interest rate cuts if and when they materialise in the United States and other important markets. That's likely to help gold performance,” Reade agreed.

But he cautioned that the metal tends to deliver returns that are only around three percent higher than US inflation in the long term.

“I would say US$3,000 an ounce over the next six to 18 months could be quite a stretch from where we are now… That said, there’s certainly the ingredients in place for the strength that we’ve seen in gold to continue for the next year or two,” adding that prices could still be volatile in the short term.

Investors lured by the promise of golden returns