In 2024, gold has once again asserted itself as one of the strongest asset classes on a global scaleThe surge in gold investment demand has sparked significant interest among investors, particularly in the realm of gold ETFs (Exchange Traded Funds). The World Gold Council reported that in the third quarter of 2024, global gold investment demand reached 364 tons, a remarkable increase of 132% year-on-yearNotably, gold ETFs reflected a net inflow of 95 tons during this period, bringing the total assets under management to a staggering $271 billion.

During an exclusive interview, Rong Ying, a managing director from China’s Huaxia Asset Management, emphasized the continuous growth of the gold ETF market in China

Advertisements

According to the World Gold Council’s latest report, by the end of the third quarter of 2024, the total holdings of gold ETFs in China surged by an impressive 30 tons, surpassing all previous recordsFurthermore, in October 2024, total holdings skyrocketed once again by an additional 21 tons, breaking yet another monthly recordAlthough there are projections for a decrease of 5 tons in gold ETF demand in November 2024, the total demand for the first eleven months of the year is still expected to surpass 45 tons.

Rong Ying, Managing Director of Huaxia Asset Management

For example, the Huaxia Gold ETF (518850) is classified as a commodity fund, with over 90% of its assets invested in physical gold spot contracts in China, specifically tracking the price of the Au99.99 contract on the Shanghai Gold Exchange

Advertisements

The fund’s scale has seen astounding growth, expanding from 210 million yuan at the beginning of 2024 to 1.1 billion yuan, marking a remarkable increase of over four timesParticularly notable was the fund’s doubling in size following the announcement of reduced fees on October 17, 2024, where the management fee rate was reduced from 0.5% to 0.15% and the custody fee from 0.1% to 0.05%.

This fee reduction has positioned the Huaxia Gold ETF to boast some of the lowest rates in the market for similar products, resulting in an impressive decrease in investment costs by 66.7% compared to before the fee reductionInvestors can now leverage these lower rates to capitalize better on opportunities within the gold sectorThe performance of the Huaxia Gold ETF from 2020 to 2024 shows annual returns of 13.83%, -4.85%, 9.84%, 17%, and 28.42%, respectively, though past performance is not indicative of future results.

The bullish outlook for gold prices is supported by various factors.

The mid to long-term trend of international gold prices indicates an upward movement, driven by its unique attributes as a commodity and currency, as well as its pivotal role in hedging against inflation and uncertainty

Advertisements

Unlike other commodities, where prices are primarily influenced by supply and demand dynamics, international gold prices are affected by a multitude of factors, including central bank demand, real interest rates in U.Ssecurities, and economic growth conditions, all of which play a critical role in establishing the longer-term trend.

In the short term, fluctuations in gold prices are influenced by factors such as the U.Sdollar index, inflation levels, and investor sentiment driven by geopolitical risksRong Ying identifies several primary drivers of international gold prices, typically encompassing the dollar index, risk events affecting financial markets, real interest rates, inflation rates, and supply-demand dynamics within the gold market.

Three long-term factors significantly impact international gold prices

• Coal Stocks: Are We in a Bubble?
• A Look at Fund Managers' Q4 Strategies
• German Companies Postpone Borrowing
• Digital & Green Skills: The New Competitive Edge
• Nikkei ETF: A Graveyard for Retail Investors

The first is central bank demand for gold, which often maintains a positive correlation with gold prices—an increase in this demand typically drives prices upward, making it a vital component of long-term gold trendsThe second factor is the real interest rate on U.Ssecurities, which shows a negative correlation to gold prices; as real yields decline, gold becomes more attractive since it does not yield interestLastly, the state of economic development usually inversely correlates with gold prices; during recessions in the U.Sand globally, gold prices typically ascendHistorically, in a U.S.-dominated monetary system, real yields on U.Sdebt and overall economic conditions have proven to be decisive elements in guiding cycles of gold prices.

However, short-term factors can also cause substantial fluctuations in gold price cycles

The first is the dollar index, which often negatively impacts gold prices; as the dollar strengthens, capital flows into dollar-denominated assets, leading to short-term declines in goldThe second factor is inflation; given that gold is viewed as an inflation hedge, heightened inflation expectations can enhance gold’s appealThirdly, during times of heightened risk, gold prices tend to rise due to its reputation as a safe haven—risk events can concurrently boost demand for both gold and the dollar, complicating market dynamics.

Presently, the interplay of U.Sdebt issues, substantial gold purchases by central banks, and rising safety-seeking behavior among investors are key drivers pushing international gold prices higherThe surge in U.S

federal debt over recent years, stemming from expansive fiscal policies, has prompted many countries to reduce reliance on the dollar, raising awareness about alternative reserves like gold.

"Gold serves as a decentralized asset; it plays a multifaceted role in central bank reserves, financial speculation, and consumer applications, making it a commodity that no single force can control," stated Rong YingFollowing recent conflicts, central banks around the globe have accelerated their gold purchases, achieving record-breaking acquisition levelsIn October 2024 alone, global central banks recorded net gold purchases of 60 tons, marking the peak for any single month in 2024.

The geopolitical landscape remains volatile, influenced by ongoing conflicts and shifting U.S

foreign policies, resulting in heightened uncertainty in global economic conditionsConsequently, the demand for gold as a safe haven continues to be robust.

Investing in Gold ETFs Offers Greater Flexibility

There is a wealth of options for investing in gold, including gold ETFs, allocated gold, jewelry, gold bars and coins, gold futures, gold stocks, and gold stock ETFsGold ETFs, when compared to other gold investment products, stand out due to their lower entry barriers and flexible investment termsThey allow for T+0 trading and are suitable for short-, medium-, or long-term investments, offering high efficiency, reduced costs, and no storage expenses.

In China, gold ETFs typically invest in physical gold contracts listed on the Shanghai Gold Exchange, with one lot (100 shares) equating to 1 gram of actual gold

Investors must open a securities account, although those without on-market accounts can also purchase off-market gold ETF linked funds.

Another popular option is gold stock ETFs, which track the performance of the CSI Gold Industry Index, providing exposure to listed stocks from 46 gold mining companies focusing on extraction, smelting, and salesThe expansion in production and leverage effects from mining companies, combined with the channel and branding advantages of gold retail stocks, contribute to the outperformance of gold stocksWhen gold prices rise, gold stocks typically exhibit greater volatility.

According to Rong Ying, the recent strength in international gold prices and the reduction of fees have significantly boosted interest in gold ETFs, especially the Huaxia Gold ETF (518850), which has seen an increase in clients both on and off the market

As of December 6, 2024, the average daily trading volume of this product since the fourth quarter of 2024 stands at 77.36 million yuan, affirming its liquidity to meet the daily transactions of both market participants.

Launched on April 13, 2020, the Huaxia Gold ETF is exchange-traded, allowing investors to smoothly buy and sell the ETF on the market, facilitated by a liquidity provider that enables sufficient trading counterpartiesMarket makers apply dual-side order placements to facilitate round-the-clock trading, and they also possess the capability to price the ETF precisely, maintaining a fair pricing environment.

No matter how international gold prices fluctuate, Rong Ying recommends that investors take a long-term view for asset diversification

Historically, gold’s long-term return level aligns closely with inflation rates, averaging around a 6% compounded return over the past thirty yearsHowever, annual returns can vary significantly, ranging from a high of 30% to a low near -30%. Nevertheless, due to its ability to hedge against inflation and geopolitical risks, as well as its lower correlation with other asset classes like Chinese stocks and bonds, gold remains crucial in household asset allocation.

When considering gold allocation, the first point to note is position controlGold is better suited as part of an overall asset allocation strategy rather than as a concentrated position"Regardless of how optimistic one may be about gold fundamentals, an overly concentrated investment can lead to daily anxiety as prices vary, creating needless pressure on investors," says Rong Ying.

Second, aligning one’s risk tolerance, investment expectations, and timeline is essential when selecting a suitable gold product