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Falling Chinese Equities Should Help Support Gold Prices – Analysts

(Kitco News) - Concerns that Chinese equities markets are in bubble territory and are ready to pop appear to be a self-fulfilling prophesy as the Shanghai Composite Index fell 7.4% overnight.

Shangahai wasn’t the only market to see weakness overnight; Hong Kong’s Hang Seng dropped 1.8%.

However, one research firm expects that the selloff in equities could be good for the gold market as Asian investors look for safe harbors.

In a research note published Friday, Simona Gambarini, commodities economist at Captial Economics, said that some investors have been preparing for this selloff as gold imports in China saw a dramatic increase last month.

According to trade data out of Hong Kong, about 64.2 tonnes of gold was imported to the mainland, an increase of 36% compared to last month and up 35% compared to May 2014. Gambarini noted that this was the highest level of imports from Hong Kong so far this year.

Also helping supporting the opinion of increased gold demand is Swiss trade data. Gambarini said that gold to China from Switzerland increased 24% compared to April and saw an incredible 800% increase compared to May 2014.

“We think investors are becoming increasingly worried about a more pronounced correction in China’s stock market and will return to gold to diversify their portfolios,” she said in her report.

Analysts at Commerzbank agreed that investors appear to be increasing their appetite for gold. “Some Chinese traders evidently regarded the price level of around $1,200 per troy ounce as attractive and took advantage of it to step up their purchases,” they said in a report Friday. “According to industry sources, jewelry manufacturers have replenished their stocks again.”

 However, the German bank added that total gold demand in China is still down 18% compared to last year as demand was lackluster in the first five months of the year.

Most precious metals analysts have been expecting the Chinese gold market to pick up this year as equities markets drop from record high levels.

In a recent interview with Kitco News, Jessica Fung, said that Chinese investors still see gold as an important asset as they have few options to store their wealth.

She added that investors are just waiting for the right time to jump into the gold market.


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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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