Gold-Backed ETFs In Hong Kong And China Hit Record Highs

Gold ETFs
Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London (Photo: Reuters / Neil Hall)

Investors in China and Hong Kong are now flocking towards gold-backed exchange-traded funds (ETFs) to take advantage of the recent surge in interest in the safe-haven assets. The rise in interest towards these types of ETFs has seen their values outperform other types of equities, with prices now reaching six-year highs.

The rising trend of ETFs has somewhat mirrored the gains of physical gold, which has now consistently returned around 17.5 percent per year to date. This has resulted in the seven major gold-backed ETFs in Mainland China and Hong Kong exchanges to achieve new record highs.

Data released by the World Gold Council has revealed that total gold holdings backing ETFs internationally have risen to 2,548 tons. This has placed assets, now standing at around $115.4 billion, to a level not seen since 2013.

In the Shanghai Stock Exchange, the HuaAn Yifu Gold ETF managed to hit a new record high of 3.4 yuan late last week. The ETF is currently China's largest gold-backed fund with total assets of around $793.2 million. Meanwhile, the gold-backed fund managed by Goutai Asset Management called the Goutai Gold ETF closed Friday's trading at 3.38 yuan, also a record high for the fund.

In Hong Kong, four of the listed gold-backed ETF on the city's bourse managed to top the day as being funds with the highest returns. SPDR Gold Trust, which is managed by State Street Global Advisors, reported returns of around 8.1 percent for the month. The fund's trading volume since June has reportedly doubled to an average of over $2 million per month.

According to SPDR's gold strategist for Asia-Pacific, Robin Tsui, gold-backed ETFs have become very popular options for gold investors as it basically allows them to buy and sell very quickly and frequently. The performance of these ETFs also closely mirrors that of spot gold, which means that volatility is kept at a minimum. Since June, SPDR's ETF has attracted more than $4.6 billion in net assets, bringing its total to $40.4 billion.

The value of physical gold has continued to rise, breaking the $1,500 barrier last week. Interest in the commodity and its accompanying ETFs had climbed since late June as the trade dispute between China and the United States suddenly escalated. The increase was further bolstered by fears of recession and the continued dovish stance of central banks.

Major financial institutions have upgraded their forecast for Gold futures. Citibank recently announced that it has revised its 6-12 month targets for Comex Gold futures, increasing it to $1,600 per ounce.

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