Chinese goldbugs swarm to stocks of miners and jewellers as bullion prices surge on rate cut view and haven demand

Shares of Chinese gold producers and jewellers have soared, tracking the surge in bullion prices fuelled by hopes of interest-rate cuts by the US Federal Reserve and demand from Chinese consumers seeking to preserve their wealth amid sliding stock markets and property prices.

Sichuan Rongda Gold jumped 10 per cent to hit the daily limit set by the exchange to 26.08 yuan in Shenzhen, taking its total gain this month to 16 per cent. Zijin Mining Group, China’s biggest gold producer by market value, rose almost 4 per cent to 14.73 yuan in Shanghai, for a 12 per cent gain in March, while Shandong Gold Mining, the second largest, rallied 3 per cent to 25.39 yuan, for an aggregate 17 per cent gain this month.

In Hong Kong, Zijin Ming’s offshore stock surged 2.8 per cent to HK$14.50 and Chow Tai Fook Jewellery Group, which derived 93 per cent of its sales from mainland China last year, added 0.2 per cent to HK$11.48.

The bull stampede follows gold’s record price of US$2,152.25 an ounce struck overnight, eclipsing the previous high of US$2,135.39 set on December 4. US Federal Reserve chair Jerome Powell’s testimony to the Capitol Hill has inspired bets of a cut in borrowing costs in June, with the governor of the world’s biggest central saying it would be appropriate to reduce the interest rate “at some point this year”, although there is no rush to do so.

A low-interest-rate environment favours non-interest-bearing precious metals like gold, whose prices move inversely with the US dollar and Treasury yields, analysts say.

Gold prices have been boosted by expectations of US rate cuts, geopolitical tensions, and China’s economic woes, said ING analysts in a note.

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“Gold tends to become more attractive in times of instability, and demand has been surging over the past two years,” said Ewa Manthey and Warren Patterson in a note. “We expect gold prices to trade higher this year as safe-haven demand continues to be supportive amid geopolitical uncertainty with ongoing wars and the upcoming US elections.”

Gold prices may rise to US$2,200 an ounce by the end of the year on haven demand, purchases by global central banks and a pivot to monetary loosening, according to ANZ Bank.

Earnings for gold producers have already been upgraded and forecasts would be raised further. Zijin Mining will probably see its profit accelerate 21 per cent this year, compared with last year’s rise of 12 per cent, according to the consensus estimate of analysts tracked by Bloomberg.

“The current returns from gold stocks haven’t fully priced in expectations about the gain in gold prices,” said Li Chao, an analyst at Sinolink Securities. “We expect more gains in gold stocks after the Fed sends a clearer signal of the rate cut.”

Global central bank demand is also fuelling gold’s rally. The People’s Bank of China bought 320,000 ounces of the bullion in January, marking the 15th consecutive monthly purchase according to the official data, as the nation seeks to diversify its foreign reserve beyond US bonds amid frayed ties with the Biden Administration. China held gold reserves of 72.2 million ounces at end-January, valued at US$148.2 billion.

Other central banks, such as those in Singapore and Poland, have also stepped up purchases.

Meanwhile, Chinese consumers have chased the yellow metal as an alternative to investments in stocks and properties, which have been weak these past few years. Retail sales of gold products increased by almost 9 per cent to 1,090 tons in 2023 from a year ago, according to data from the China Gold Association.

But signs of fatigue may be setting in after goldbugs took the metal to dizzying heights.

“We look for near-term firmness and possibly new highs, especially if yields ease, but we are doubtful that retail jewellery, bar & coin, and assorted gold buying, especially in emerging markets, can be sustained,” said HSBC analysts in a note.

“Also despite some indications of demand, it is doubtful if central banks – a mainstay of price gains in 2023 and 2024 – will make heavy purchases with gold hitting new highs.”