Chinese Load Up on Gold ETFs

May 27, 2016 Updated: May 27, 2016

Recently, Chinese have been associated with getting their money out of the country because of the weak economy and a possible debt crisis.

Those who are not getting their money out by buying Vancouver real estate or Italian soccer clubs have found another solution to the economic uncertainty: Gold ETFs.

The Chinese segment of this almost 2000 ton global market is tiny (20 tons), but those holdings doubled in the first quarter of 2016 compared to the first quarter of 2015, according to a report by the World Gold Council.

(World Gold Council)
(World Gold Council)

The most popular Chinese Gold-backed ETF (Huaan Yifu Gold) increased its holdings by almost 30 percent to 13.5 tons in the first quarter compared to the end of 2015.

Globally, gold ETFs increased their holdings by 364 tons, the highest number since the first quarter of 2009 contributing the most to gold’s strongest first quarter of the year on record. Total demand was 1290 tons, up 21 percent compared to the same period in the year before.

“The noxious atmosphere of uncertainty created by global monetary policies and shifting expectations for U.S. interest rate rises were cause for concern. Investors sought the safety of gold,” the report states.

(World Gold Council)
(World Gold Council)

The report also mentions the threat of a Chinese devaluation caused the spike in gold demand. Being at the epicenter of these worries, Chinese also loaded up on physical gold and increased their purchases 23 percent compared to the end of 2015. They bought 62 tons.

“I think many Chinese understand if they buy gold in China with renminbi, they are also hedged against such a devaluation, so there is no need for normal Chinese to use gold and bring it out of the country when they made their money in an honest way,” says Willem Middelkoop, author of “The Big Reset.”

Another reflection of this shift in consumer sentiment in China is the fact demand for gold jewelry actually decreased 4 percent over the quarter and 17 percent over the year (216 tons to 179 tons). 

The Chinese central bank, while defending its currency against massive capital outflows has also continued to load up on gold.

“Russia and China–the two largest purchasers last year–continue to accumulate significant quantities of gold,” states the report. China added 35.1 in the first quarter and it looks like the made a good investment. Gold outperformed all other asset classes in the first quarter:

(World Gold Council)
(World Gold Council)