Investors are ploughing into gold, and the price is now up 1.10% at $1,071.80 an ounce, as of 9:10 a.m. GMT
This is a sure-fire sign of how terrified investors are about the state of China’s stock markets and the country’s growth prospects.
Gold is seen as a haven for cash. It doesn’t pay a coupon like a bond, and it doesn’t pay a dividend from a stock, but it does mean you own ounces in a physical precious metal that you can hold onto.
A spike in the gold market usually means investors are worried about the state of more volatile asset classes like stocks or bonds.
Over the past few months, China’s dampened growth and wild swings in its equity markets caused major concern for investors. But Monday marked a new wave of worry, judging by the gold price.
Investors are generally worried about China’s “real” economic growth. Monday morning, David Buik, an analyst at City broker Panmure Gordon,told BBC Radio 4’s Today programme that China’s economic growth was a lot worse than the government had let on. The official annual growth figure is at 7%, though Buik “humbly suggests” that 3% growth is more accurate.
On Monday morning, China’s blue-chip stocks tanked to their lowest level in four months after a disappointing manufacturing PMI report for December and further weakening in the Chinese yuan. The fall was curtailed only by a governmental mechanism that was installed that barred stocks from tumbling past 7%.
And this is all because of 2015’s dramatic Chinese stock market volatility, in which more than $5 trillion was erased from global stocks since China unexpectedly devalued its currency in August. When that happened, as on Monday, Chinese investors rushed back into buying gold.
That very same month, the country’s net gold imports from Hong Kong rose to a huge 97.2 tonnes from 59.3 tonnes in August, according to data obtained by Reuters from the Hong Kong Census and Statistics Department.
Here’s the key quote from the report (emphasis ours):
Now that the stock market euphoria has been stamped out and reality has finally (and painfully) set in, the public and many casual retail investors have now lost faith in the stock market, and this has certainly boosted gold’s attractiveness as an investment vehicle.
And it looks as if history is repeating itself once again. If you thought 2016 would be quieter than last year, you’d be wrong.
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The China Effect:
Whatever the date now today; August 25 2015 shall always be a milestone in the future of financial discussion. This was the day the Chinese economy had their own ‘Black Monday’. Any share market-watcher or stock trader would well tremble when they hear those words.
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