The Chinese gold market has been notoriously opaque over the past few decades, but thats now changing as its Shanghai and Hong Kong metals exchanges increase their visibility with new investment products and growing participation from Western banks, and its central bank is now reporting additions to its official reserves.
And while some analysts say the United Kingdoms June 23 vote to exit, or Brexit, the European Union will have few lasting global economic effects, investors in China apparently beg to differ. The most eye-catching sign of Chinas post-Brexit gold rush is the surging action in its major bullion-linked exchange-traded fund.
Heeding warnings of recession and contagion from numerous reputable sources, Chinese investors are rushing to gold as a haven after the U.K.s vote to quit the European Union, Bloomberg reported Monday.
Turnover inHuaan Yifu Gold ETF, Chinas top exchange-traded fund backed by bullion, jumped to a record 1.27 billion yuan ($191 million) Friday after Britains vote, the news agency added. Outstanding shares of Huaan also reached a record 1.6 billion on June 20, jumping five-fold from the start of the year.
Sharp uptick at Shanghai exchange: For the past few years we only saw tepid Chinese interests in these gold funds, Shanghai Leading Investment Co.s Shihua Duan told the agency. Now theres a surge and a lot of people havent realized that this surge is only the beginning.
China has always been crazy about physical gold such as jewelry and coins, to the detriment of its ETF industry. The current holdings of the top four such funds only total about 28 tons even after major inflows this year; Duan argued that that number should rise eventually to at least 600 tons.
Meanwhile, activity on the Shanghai Gold Exchange also erupted in the Brexit referendums wake. There has already been a sharp uptick in activity on the Shanghai Gold Exchange, the World Gold Council noted in a June 24 update. Trading volume spiked, reaching 346t compared to a daily average of close to 100t since the start of the year.
Hong Kong exports to mainland leap: In another sign of growing demand, Chinas imports from Hong Kong in May jumped to their highest level in five months, with 115 tons brought to the mainland for a 68% month-over-month increase and a 63% year-over-year rise.
Furthermore, in the leadup to the Brexit vote, Switzerlands gold exports to mainland China started rising, with a 36% month-over-month increase in May of 19 tons, while the 24 tons sent to Hong Kong almost tripled the previous months total.
The year 2016 has seen a topsy-turvy shift in gold-demand patterns. After a record level of gold consumption in China in January, Western investors who had forsaken gold in favor of stocks also found their way back to the metal as the U.S. stock market plunged early in the year. But Chinese demand appeared to ebb somewhat after the January peak, as did Western investment as equities stabilized. Now, though, with Brexits potential after-effects being felt globally, both Eastern and Western gold buyers seem to be returning simultaneously to the gold fold, and that bodes well for predictions of $1,400 and higher bullion prices.