Chinese Dip-Buying Bolsters Gold as Prices Find Floor at $4,000

dkf(kmds]8jjqce2pc6)mn9p_media_dl_1.png Bloomberg

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(Bloomberg) — Chinese institutional investors have swooped on gold in recent weeks, helping to arrest the precious metal’s decline and keep prices above the key threshold of $4,000 an ounce.

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Gold-backed exchange-traded funds in China saw 14 straight days of inflows up to Monday, the longest streak since March, according to calculations by Bloomberg. That points to a shift in sentiment in the world’s biggest bullion market after war in the Middle East fueled a long stretch of outflows and price declines.

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“Interest from institutional investors has increased since gold fell to around the $4,000 level,” said Steve Zhou, an analyst at Huaan Fund Management Co, which operates the country’s biggest gold ETF. A selloff in China’s equities markets has helped boost inflows, he said.

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Gold has shed more than a quarter from a record high earlier this year, as the Iran conflict fanned inflation fears and raised rate-hike bets, offering a headwind for non-yielding precious metals. But prices just posted their first monthly gain since February and slipped below $4,000 only a few times during July.

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In China, recent volatility in stock markets has triggered interest in other assets. Technology stocks have slumped as investors grow wary of relatively high valuations and crowded positioning for companies linked to artificial intelligence. The benchmark CSI 300 Index fell almost 8% in July, snapping three months of gains. 

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“Activity by leveraged funds in the tech sector has added to market volatility, and some funds may instead seek new allocations with a better margin of safety,” Huaan’s Zhou said. “That could bring gold back to institutional radars.”

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There are also signs of strength in the physical market. Prices on the Shanghai Gold Exchange are at a modest premium to the global benchmark in London, meaning it’s cheaper for banks to procure the metal  offshore.

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“Our stocks have been cleared quite quickly, which is unusual,” said Bernard Sin, regional director for Greater China at trader and refiner MKS PAMP SA. The company has received a lot of enquiries from onshore banks that serve the Shanghai Gold Exchange International Board, a platform where they can import bullion.

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To be sure, the uptick in demand in China is still modest so far, and may not be enough to drive prices higher, according to Sin from MKS PAMP SA. “We haven’t seen panic buying yet,” he said.

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On the Wire

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China secured its largest amount of US soybeans so far this year, adding to a slew of buying by the Asian nation in recent weeks.

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Copper is pouring into the US at the fastest rate in at least 12 years as traders position ahead of President Donald Trump’s decision on tariffs on refined imports.

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Zijin Gold International Co.’s abandonment of a $3.9 billion takeover of Canada’s Allied Gold Corp. is the clearest indication yet that Chinese officials are changing tack on overseas mining investments.