Hong Kong’s new gold rush: ‘Big Mother’ investors from mainland China buy big as yuan falls and global economy shudders
China imported five times more gold from Hong Kong in May amid global and regional economic and geopolitical uncertainties, with gold traders expecting the trend to continue as prices keep rising and investors keep buying as a hedge to the falling value of the Chinese yuan.
Chinese customs data released last week showed imports from Hong Kong to the mainland increased in May mainly due to cross border shipments to meet mainland customer demand.
China’s total gold imports in the first half of this year amounted to 173 billion yuan (HK$200.6 billion). Of that, 45.8 billion yuan was gold imported from Hong Kong, up 5.5 times year on year.
Gold imports from Hong Kong represented 25 per cent of all imports of the precious metal into China in the first half of this year, compared with only 2.8 per cent in the same period last year. In comparison, the amount of gold China imported from Switzerland in the first half dropped 30.5 per cent year on year, South Africa fell 23.1 per cent and Australia decreased by 31.5 per cent.
Jasper Lo, chief executive of King International, said many mainlanders, especially “Big Mother”investors – elderly ladies who like to invest in the metal – were major buyers of gold, which has risen in price by 28 per cent this year, up 6 per cent in the last three weeks.
“The gold rally started in the beginning of this year due to the many uncertainties about US interest rate rises, the Brexit and the dispute over South China Sea sovereignty between mainland China and the Philippines. These uncertainties have seen gold become a safe haven for investors,” Lo said.
“Mainland Big Mother investors...have one more reason to invest in gold – it is a good hedge for the falling value of yuan. When many expected the yuan would continue to devaluate further this year, this led the Big Mothers to invest in gold instead,” he said.
The yuan has devalued by more than 3 per cent against the US dollar this year, on top of a devaluation of 5 per cent last year, while many analysts believe the currency will fall further due to the poor economy of China.
Lo said May saw more demand for gold because political tensions between China and the Philippines over the South China Sea escalated. In addition, opinion polls taken in May had showed there was a chance Britons would vote to leave the European Union in the June referendum, another factor that spurred gold buying by mainlanders.
The flight to safe haven assets like gold would continue because currency markets have became more chaotic post Brexit and tensions rose when Beijing rejected the ruling by the international tribunal in the Hague against China’s claims to contested areas in the South China Sea, Lo explained.
“This has led to fear of military confrontation. These [factors] all support gold prices going up and investors will continue to buy gold, which would increase demand for gold imports from Hong Kong in future,” he said.
Gold trading between Hong Kong and the mainland is expected to increase further after the People’s Bank of China announced in May a rule change, effective June 1, to simplify cross-border shipment procedures that will speed up gold imports into the country.
Haywood Cheung, permanent honorary president of the Chinese Gold and Silver Exchange Society, said mainland China has been the world’s largest gold importer, which has in turn attracted many gold firms to set up in Hong Kong in recent years.
“There were a large number of gold firms set up in Hong Kong in the 1980s but they left when the local gold market turned quiet,” Cheung said. “Now, with China becoming the world’s largest gold consumer, we have seen an increasing number of gold traders from Switzerland, Australia and South Africa move to Hong Kong. Some are moving their Asian headquarters from Singapore to Hong Kong,” he said.
“Many of our members have seen their gold trading increase substantially this year as the volatile markets led more investors to buy gold as a safe haven,” he said.
He believes China’s gold imports from Hong Kong will continue because the city has a sound banking system and excellent logistical services. “The overseas gold traders who want to do business with China would like to use Hong Kong as a stepping stone to serve the mainland customers,” he said.
The Chinese Gold and Silver Exchange Society has set up an office in Qianhai and it is also planning to set up a gold vault in the special economic zone next to Shenzhen.
Cheung said there were several thousand gold jewellery factories in Shenzhen that they would benefit from the facilities in Qianhai. “It is time for Hong Kong to revive its golden days as an international gold trading centre,” he said.