Gold gains traction among country's investment options

Economic uncertainties push yellow metal to forefront of wealth management

Gold holdings will increase among Chinese high net-worth individuals next year as uncertainties loom in capital markets, experts said, as wealth preservation and security top their asset management priorities.

According to a report released by the World Gold Council earlier this month, among the Chinese affluent, wealth preservation and security exceeded in importance to increasing the value of their wealth.

This is based on a survey of 218 wealthy Chinese with an average personal investable asset of 6 million yuan ($837,670), aged over 40 and with a minimum investment experience of two years.

According to the survey, the majority — 90 percent — have either invested or expressed willingness to invest in the yellow metal, said the report.

Jia Shuchang, a senior analyst from the WGC, said stability is currently the major wealth management purpose, and this has intensified after the COVID-19 pandemic.

The stress on security is reflected by their investment choices.

While cash and savings crowned the list of asset management choices, onshore insurance came in second, followed by A shares and investable properties.

Gold is the fifth most popular asset management option at present, according to the WGC report.

"As a globally accepted asset, gold's advantages in higher liquidity and risk diversification have increased its appeal to the rich group," said Jia.

Uncertainties will abound in the capital markets next year, including tightening liquidity, geopolitical conflicts and an increasingly noticeable trend of de-globalization.

Making investment portfolios more defensive will be especially important against this backdrop, he added.

The WGC said gold prices surged nearly 10 percent in 2022 at a time when the benchmark Shanghai Composite Index slid over 15 percent and the renminbi depreciated more than 8 percent.

The bullish performance continued this year, with prices of yuan-denominated gold spiking over 16 percent during the first 10 months of 2023 despite soaring interest rates and aggravated systemic financial risks worldwide.

Both spot and futures prices of the precious metal crossed the $2,100 mark on Dec 4 to hit new highs.

Gold is an effective asset to guard against inflation and risk, according to the high net-worth individuals polled by the WGC, who cited bullion's hedging function during the 2008 global financial crisis as an example.

A continued expansion in the number of wealthy Chinese will underpin demand for gold, Jia added.

There are 2.11 million households with a net family wealth of at least 10 million yuan in China in 2023, and this is 50,000 more than the statistics compiled a year earlier, according to Hurun Research Institute, a Shanghai-based institution that tracks the affluent.

The average consumer price index for these people had increased 3.9 percent year-on-year by July, as discovered by Hurun, while the national average was a contraction of about 0.3 percent during the same period, said the National Bureau of Statistics.

This indicates the high consumption ability and enthusiasm of wealthy Chinese, which will translate into continued momentum for the country's economic growth, said Rupert Hoogewerf, founder and chairman of Hurun.

However, stability is a focus area for these high net-worth individuals when it comes to cash planning. Such a conservative attitude may not change significantly in the next three years, he added.

Allocating 6 to 10 percent of their investable assets to gold, the rich group usually considers gold as a long-term investment target, holding it for six to 10 years, according to the WGC.

Physical gold, especially 100-gram and 20-gram gold bars, is especially favored by affluent Chinese, as these are easy to carry and can be converted to cash more quickly.

According to the WGC, demand for gold bars and coins in China surged to 82 metric tons in the third quarter despite soaring gold prices, representing the strongest third-quarter performance since 2018.

In the first nine months, China's demand for gold bars and coins reached 197 tons, up 26 percent year-on-year, said the WGC.

Meanwhile, China's total demand for gold jewelry reached 481 tons in the first three quarters, up 8 percent on a yearly basis.

The country's demand for gold jewelry has offset declines in other regions, stabilizing global gold jewelry demand, said Roland Wang, CEO of WGC (China).

Wealthy Chinese individuals' interest in gold is in accordance with central banks' increased holdings of the precious metal.

According to the WGC, central banks worldwide bought a net 800 tons of gold in the first three quarters of 2023, the highest on record for that nine-month period. The net buying is 14 percent higher than during the same period in 2022.

The People's Bank of China, the country's central bank, has been the biggest gold purchaser in 2023, according to the WGC.

The Future Fund, Australia's sovereign wealth fund, said late last year that it will add gold to its portfolio to combat inflation and increase its defensive play.

In December 2022, Russian Direct Investment Fund, Russia's sovereign wealth fund, raised the limit for gold investment to 40 percent, from the previous ceiling of 20 percent.