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Chinese Investors Waiting For The Right Time To Buy Gold – BMO

(Kitco News) - Chinese investors have become more sophisticated and are now waiting for the right time to buy gold, as demand remains stable throughout Asia, according to one commodity analyst.

At the start of the month, BMO commodity analyst Jessica Fund traveled to China on a research trip and after speaking with clients and investors, said the biggest surprise was how closely Asian investors are watching the Federal Reserve.

Gold prices have suffered because of consistent expectations that the U.S. central bank will raise interest rates in September. Chinese investors have been reluctant to jump into the marketplace, despite gold prices hovering at the bottom end the range.

“Right now the price is very important to Chinese investors,” said Fung. “They are waiting for the right time to buy and it shows that they are being a lot more sophisticated instead of just chasing the price up.

“Investors remember getting burned in 2013 and they don’t want to make that same mistake again,” she added.

Fung said that it would have to take a considerable drop in price for Chinese investors to once again buy gold on mass.

“Investors are not going to move on a decline of $25. They are going to want to see a bigger drop,” she said.

Although gold demand in China has been dropped off compared to recent years, Fung said that it is important to look at a longer historical period. She explained that strong demand in 2013, which was sparked when prices saw their biggest decline in 30 years, should be considered an anomaly.

“Compared to 2012, I think demand is still strong and I think it will remain strong,” she said. “Wealth is increasing in China and gold is still seen as a valuable asset.”

Fung said she remains optimistic that Chinese demand will remain strong for years to come because there are very few options for domestic investors, especially as property and equity markets become over-valued.

Not only are higher incomes expected to boost investment demand, but Fung said that she also expects jewelry demand to increase in China, another positive for the gold market.

She noted that last year one of China’s biggest jewelry retailers made 100 million yuan ($16 million) in online jewelry sales last year.

Looking at the spark that will ignite a rally in the gold market, Fung said that she continues to monitor inflation pressures and right now economic data points to benign inflation. She added that slack in the Chinese economy will keep inflation in check in the medium term and until then investors will remain on the sidelines.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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