Gold breakout rally sends Chinese bullion stocks near highs as central banks keep buying
A rebound in gold prices has pushed shares of Chinese producers of the precious metal near record highs, while the bullion’s status as a strategic investment remains intact amid global central bank buying and financial stress in the world’s key economies. Shares of Zijin Mining Group and Chifeng Jilong Gold Mining Group, the nation’s biggest metal producers, have risen at least 40 per cent from…
A recent surge in gold prices has catapulted shares of Chinese gold producers to near record highs, as the precious metal continues to serve as a strategic investment despite central bank purchases and economic uncertainties worldwide. Top Chinese metal producers, Zijin Mining Group and Chifeng Jilong Gold Mining Group, have climbed at least 40% from July lows in Shanghai, nearing all-time highs achieved earlier this year.
The Chinese market's gold stock index has risen by approximately 25% from its low, according to Shanghai DZH data. This bullish shift in gold stocks followed a similar pattern in gold prices, which have climbed 12% in New York over the past month after experiencing tumultuous sell-offs due to an oil shock.
Gold has broken out of its 50-day moving average, a crucial technical level, suggesting that months of market turmoil may be nearing an end. Major buyers in the second quarter were China and Poland, helping to counteract sell-offs from exchange-traded funds (ETFs) and speculators. Gary Dugan, CEO of The Global CIO Office, noted that gold still holds its strategic importance as a holding.
The precious metal climbed 1.3% to $4,479 an ounce on Tuesday, extending gains driven by fading fears of an immediate interest-rate hike following weaker-than-expected US jobs data. Gold has risen 3.3% this year, but it remains 18% below its January 28 peak of $5,447 an ounce due to oil price increases fueling speculation of a tighter monetary policy by the US Federal Reserve, diminishing the appeal of the non-yielding asset.
Global financial institutions have become more optimistic, citing the surge in demand from central banks and increasing sovereign debt as potential catalysts to revive the debasement trade. State Street Investment Management predicts gold prices to reach $5,000 an ounce by year-end or early 2027, while Deutsche Bank forecasts gold to reach $4,700 by the end of the year.
Central banks worldwide, including the People's Bank of China, Poland's central bank, and South Korea's central bank, have accelerated buying, with China purchasing 33 tonnes and Poland 51 tonnes in the three-month period. South Korea announced that it would increase gold's share of its foreign reserves, ending a 13-year absence of purchases.
Sovereign reserve diversification and China's goal to establish Hong Kong as a regional hub for gold trading, as part of its efforts to promote the yuan's internationalization, may further boost demand for the bullion. Stephen Innes, managing partner at SPI Asset Management, emphasized ongoing sovereign reserve diversification and substantial treasury financing needs, indicating that China's official purchases continue.
Additionally, Stephen Innes stated that physical flows suggest that China's gold ecosystem may be expanding, and ETF demand is beginning to awaken.
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