Gold Fever Grips Chinese Investors

Source:

". . .the more savvy investors are also buying shares of Chinese gold producers. . ."

Bitten by the gold bug, Chinese investors are now rushing to hoard the yellow metal as fears over the global recession deepen.

The increased sales of gold bars and gold jewelry in Shanghai, Beijing, Guangzhou and other large cities are reflected in the precious metal's price surge on the Shanghai Gold Exchange (SGE), which trades in gold contracts for forward deliveries. Gold prices quoted on the SGE have increased by an average 6.74% in the past month to the current level of about 209 yuan a gram.

"Gold demand in China in the first quarter rose to 114 tons, up 2% over the same period last year, solely boosted by an increase in jewelry demand," according to the latest Gold Demand Trends report for the first quarter of 2009 published by the World Gold Council.

Inspired by the increase in the government gold reserves, the more savvy investors are also buying shares of Chinese gold producers on the Shanghai Stock Exchange and the smaller Shenzhen Stock Exchange.

"China's gold reserves may serve as backing for the yuan as Beijing is stepping up the promotion of its use overseas," said Albert Cheng, director of the World Gold Council's Far East Division.

According to Cheng, China now plays a greater role in the global gold market. Based on its increased holdings, China is fifth-largest gold reserve nation after the United States, Germany, France and Italy. In addition, China is also the world's largest gold producer and the second-largest gold jewelry consumer next to India.

Gold-related shares on the Chinese bourses have also rallied in recent days. Zhongjin Gold Co surged by 9.29% to 76.73 yuan on Wednesday, while Shandong Gold Mining edged up by 5.55% to close at 44.5 yuan.

"The declining value of the dollar along with the worsening economic outlook is forcing investors to seek other anti-inflationary investment tools, like gold," said Xiao Zheng, analyst, Ping An Securities.

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