U.S. Markets open in 27 mins

Gold Demand Stays Strong in China

Meera Shawn

Precious Metals Fell Again after Day of Recovery

(Continued from Prior Part)

Hoarding behavior

Money managers and hedge funds are increasingly becoming bearish on gold. With the curb in ETF investments for the past few weeks, the overall market seems to be cutting its long positions held in precious metals. China, however, appears to be mesmerized by the slide in precious metal prices, as it keeps increasing its holdings in gold.

After the $5 billion stock market collapse in China, investors fled to gold. Even a third straight annual decline in prices has failed to make gold lusterless in China. In September, after the surprise devaluation of China’s currency, China imported the most gold in 19 months from Hong Kong. It seems that China is hoarding the metal in order to become the next superpower, backing its currency with gold.

ETF flows

The demand for gold in China could reach about 1,000 metric tons for 2015, which is close to the prediction in India. Which one of these will emerge, then, as the gold buying leader? Gold futures have fallen 8.7% on a 30-day trailing basis. The fall has affected hedge funds, which withdrew their money from exchange-traded products such as the iShares Silver Trust (SLV) and the SPDR Gold Shares ETF (GLD). However, the physical demands still stay active in the Asian markets.

Gold mining companies such as GoldCorp (GG), New Gold (NGD), and AuRico Gold (AUQ) fell 2.9%, 8.1%, and 2.8%, respectively, on Friday, November 20, 2015, due to precious metals slipping further. These three companies contribute 10.5% to the Market Vectors Gold Miners ETF (GDX). GDX fell 4.1% on Friday, November 20.

Browse this series on Market Realist: