Gold exchange traded funds (ETFs) may soon see a jump now that China has received approval to put money into them.
Lion Fund Management in China has gotten the go-ahead to throw up to $500 million at physically backed gold ETFs in overseas markets.
The fund will be the first in the country to have such access. The move has been met with enthusiasm, because until now, Chinese investors who wanted exposure to gold would have to buy it themselves or invest in gold contracts, says Bloomberg.
After the approval, gold prices shot up on anticipation that gold demand from China would be strong. Investors there are dealing with negative real interest rates on bank deposits and they’re seeking an inflation hedge, report Chris Oliver and Matt Whittaker for The Wall Street Journal. [What Affects Gold ETFs?]
The news raises questions about what another new pool of investors would do for gold demand, and in turn, gold’s price. Not only have investors been pouring into gold ETFs such as SPDR Gold Shares (NYSEArca: GLD), iShares COMEX Gold (NYSEArca: IAU) and ETFS Physical Swiss Gold (NYSEArca: SGOL), the physical gold ETF movement is gaining overseas, too. Hong Kong launched a fund this month, and some wonder if China is far behind, given the interest. [Physical Gold ETFs Go Head-to-Head.]
A slew of new gold investors appearing on the scene could send demand soaring, and if that’s the case, gold’s price may see a continuation of the gains it’s made this year. That alone could make the case for gold continuing to go higher, but be sure you’ve got your entry and exit strategy in place before you dive in to play this market yourself.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.