China’s latest investment frenzy sparks wild swings in gold ETF

An exchange-traded fund (ETF) that owns gold companies has become the latest target of frenzied trading in China as investors pile into corners of the market seen as resilient to the country’s economic challenges.

Trading for the ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF was halted until 10:30am on Monday local time to protect investors’ interests, China Asset Management said in a statement on Monday. It was the second trading suspension for the product since last Tuesday.

The decision came after the fund’s premium over its underlying assets increased to more than 30 per cent as of April 3, the highest on record, Bloomberg-compiled data shows. The ETF’s price had gained over 40 per cent in the past four sessions before falling 10 per cent after trading resumed on Monday.

The ETF fervour is a fresh example of yield-hungry Chinese investors flocking to pockets of market strength as deepening property woes, volatile stocks and falling deposit rates reduce their options. The enthusiasm about products tied to gold, which has staged a record-setting rally in recent weeks, also shows a desire to park money in a sector seen relatively immune to a struggling economy.

“Gold is trading at an all time high, and gold ETF demand has surged in the past week with almost US$600 million of net inflows into gold ETFs globally,” said Rebecca Sin, a Bloomberg Intelligence analyst. “Demand in Mainland China could continue as investors look to diversify their holdings with commodities and foreign ETFs.”

Gold, long a favourite among China’s family-run investors, has hit a procession of records in recent weeks on expectations of US interest rate cuts and amid rising geopolitical tensions. China’s central bank is a big buyer, having bought the precious metal for its reserves for a 17th straight month in March.

Spot gold was up 0.3 per cent at US$2,335.73 per ounce as of 6:46am GMT on Monday, after hitting a record high of US$2,353.79 earlier in the session. US gold futures gained 0.4 per cent to US$2,354.50.

Shares of Chinese gold miners also have produced stellar gains this year. Zijin Mining Group and Shandong Gold Mining have both risen more than 50 per cent from their respective lows earlier in the year. The two stocks have entered overbought territory, based on technical indicators.

The latest gold ETF rush is reminiscent of Chinese retail investors’ buying spree of overseas stocks via a number of onshore fund products earlier this year, when local shares suffered a meltdown. In one case, investors pushed the premium on an ETF tracking Japanese equities, which was also sold by China Asset Management, to beyond 10 per cent and triggered a warning from the fund.

China Asset Management said in a separate statement on Monday that it has added China Galaxy Securities as a liquidity provider for the gold ETF.