Chinese Investors Pile Into Gold As Economic Worries Surge

(October 28, 2019 - Simon Constable)

Chinese investors are piling into gold bullion in a big way as worries over China’s economy and political system surge.

Holdings of the metal at the communist state’s four bullion-backed exchange-traded funds reached a record-breaking 50 metric tons at the end of September, according to a new report from industry group World Gold Council. That’s metal is worth around $2.4 billion.

The total bullion held by those ETFs rose 3.5 tons compared to the previous month, meaning that investors piled $168 million of cash into the funds over the 30 days through September 30.

People familiar with the gold market will already know that the Chinese ETF total is dwarfed by the better known SPDR Gold Shares ETF (ticker: GLD), which alone holds 918 tons of the metal worth more than $44 billion.

However, the flood of cash going into the four Chinese funds this year is a telling signal about the deteriorating state of investor sentiment in China.

Chinese investors have plenty to worry about, says Gordon G. Chang, author of The Coming Collapse of China.

“The Chinese currency is at weak levels, and the economy is crumbling,” he says.

At the beginning of March, one dollar would fetch 6.7 Chinese Renminbi yuan, but recently you’d do far better with a greenback trading for 7.07 yuan. In other words, the yuan is worth less than it was a less than a year ago.

That weakness reflects a deteriorating economy. Chang says the country’s actual growth rate is likely to be far lower than the recent stated annualized growth of 6.0%. Even if you believe the government statistics, the figure still represents the slowest growth for the country since 1992.

Chang also says that the government is finding that debt-fueled public spending has a much-reduced ability to boost the country’s economy.

In simple terms, the Chinese economy is on the rocks, and there is little that can be done to fix the problem. Or at least, what can be done – such as reducing state control – won’t be considered by the communist party leaders.

As a result of the malaise, investors are seeking sanctuary in gold bullion.

“It’s a big vote of no confidence in the Renimbi [the country’s currency],” says Chang.