Chinese Demand Fueling Gold ETF Rally

Gold fever in China is supporting a rally in bullion-related exchange traded funds as volatility in Chinese equities and currency markets adds to safe-haven demand.

Gold is among the best performing assets of the year. Year-to-date, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) have gained almost 17.0%.

Supporting gold prices, China has driven up gold demand as investors looked to the safety of the hard asset in light of ongoing uncertainty in the global economy.

“It has been very, very busy for us in the last few weeks,” said Padraig J. Seif, chief executive officer at Finemetal Asia Ltd., a Hong Kong-based bullion dealer that sold more gold in the first three weeks of March than in all of February, the Wall Street Journal reports.

Seif also pointed out that most of the bullion buyers this time around were corporate investors rather than jewelry makers, which suggests that there is large investment demand as opposed to retail consumer demand.

“For Chinese, gold has special meaning,” Lao Feng Xiang, a Shanghai jewelry shop clerk, told the WSJ. “Parents used to buy gold jewelry, such as a necklace, as a dowry for their daughters. But now, more customers prefer to buy gold bullion or coins for value-preservation purposes.”

The World Gold Council also recently revealed that investment gold sales in mainland China, which consumes a fifth of the global gold supply, were up 25% in the fourth quarter of 2015 year-over-year while jewelry sales were down 1%.