Gold-backed ETFs gain popularity in nation

Chinese dama, or middle-aged women, who rushed to buy gold in 2013 when prices fell, seem to have turned to Chinese gold-backed exchange traded funds, which saw the fastest growth among Asian-listed funds in the third quarter of 2019, analysts and industry experts said.

Geopolitical tensions, worries over a slowdown in global economic growth, lower interest rates and negative yields in debt sparked a safe-haven rally in gold as prices of the metal soared to a level around $1,500 per ounce in that quarter, said a report on Gold Demand Trends Q3 2019 published by the World Gold Council.

Assets under management in Chinese gold-backed ETFs reached a record high of 17 billion yuan ($2.42 billion), or equivalent to about 50 metric tons in the third quarter, becoming the major impetus of the growth of Asian-listed funds during this period, World Gold Council China managing director Wang Lixin said.

Chinese dama were known for spending 100 billion yuan to buy 300 tons of gold in 10 days when prices plunged sharply in April, 2013. Their big-ticket purchase became the key element in the global market and stabilized gold prices later that year.

Nearly half of the investors of the world's largest gold-backed ETF product launched by the World Gold Council are individual investors, with the rest being institutional investors, Wang said.

The majority of gold-backed ETF investors are experienced punters in stocks and bonds. For Chinese dama, investing in gold-backed ETFs is not that complicated as long as they have their own stock or bank accounts, added Wang.

Globally, gold demand grew 3 percent from a year ago to 1,107.9 tons in the third quarter, thanks to the largest ETF inflows since the first quarter of 2016.

Holdings in gold-backed ETFs hit a new all-time high of 2,855.3 tons in the quarter between July and September, said the World Gold Council report.

Joseph Cavatoni, managing director of the World Gold Council USA, believes demand for the yellow metal remains stable, non-speculative and long-term. Accommodative monetary policies, along with safe-haven and momentum buying, drove demand.

The latest positive news of progress in trade negotiations between China and the US has increased investors' appetite for riskier assets, which led to the recent sell-off of holdings in safe-haven assets such as gold ETFs, a Bloomberg report on Monday said.

As a result, the gold price has declined more than 6 percent since touching a six-year top in September.

"People who were hanging onto gold for protection took some of that off the table and seemingly have now moved back into risky assets for the time being," David Mazza, head of ETF products at Direxion Investments, was quoted as saying in explaining the recent large amount of withdrawals in gold backed ETFs.

Gold-backed ETFs in China remain comparatively new with a history of less than five years, having developed worldwide for nearly 15 years.

Wang said the proportion of gold-backed ETFs will grow gradually as individual Chinese gold investors become more mature and professional.

Jewelry demand in China declined 12 percent year-on-year in the third quarter to 156.3 tons because of the rally in gold prices. The mass appeal of 24-karat gold jewelry witnessed a double-digit decline during the same period.

Most retailers, though, saw growth in the sales of innovative products.

"The sales decline of conventional gold jewelry was partly offset by the rising demand of the young generation in pursuit of delicate products with stylish designs, which still brings us stable profit," said Chen Xiongwei, president of the China National Gold Group Gold Jewelry Corp Ltd.

"Whether it is 3D hard gold, heritage gold, or other innovative products, more consumers are drawn to the unique designs and craft technologies," added Wang.

Retailers have already taken action in appealing to their diversified consumers, either for Chinese dama, the millennium generation or generation Z groups.

"A research center was jointly launched by China National Gold Group and Shanghai Jiao Tong University to accurately tap into consumers' preference in design through research and development," said Chen.

While maintaining its strength in conventional gold consumption, the China National Gold Group has adopted strategies such as brand differentiation and upgrades to improve the shopping experience, integrate the online and off-line business, as well as business innovation, added Chen.

Industry experts said lighter and more aesthetic products are expected to take a larger share of the market in the long run.