China’s latest investment frenzy sparks wild swings in gold ETF

An exchange-traded fund (ETF) that owns gold companies has become the latest target of frenzied trading in China as investors pile into corners of the market seen as resilient to the country’s economic challenges.

Trading for the ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF was halted until 10:30am on Monday local time to protect investors’ interests, China Asset Management said in a statement on Monday. It was the second trading suspension for the product since last Tuesday.

The decision came after the fund’s premium over its underlying assets increased to more than 30 per cent as of April 3, the highest on record, Bloomberg-compiled data shows. The ETF’s price had gained over 40 per cent in the past four sessions before falling 10 per cent after trading resumed on Monday.

The ETF fervour is a fresh example of yield-hungry Chinese investors flocking to pockets of market strength as deepening property woes, volatile stocks and falling deposit rates reduce their options. The enthusiasm about products tied to gold, which has staged a record-setting rally in recent weeks, also shows a desire to park money in a sector seen relatively immune to a struggling economy.

“Gold is trading at an all time high, and gold ETF demand has surged in the past week with almost US$600 million of net inflows into gold ETFs globally,” said Rebecca Sin, a Bloomberg Intelligence analyst. “Demand in Mainland China could continue as investors look to diversify their holdings with commodities and foreign ETFs.”