Hedge funds slash bullish wagers on gold over Trump election win
The precious metal has fallen about 8% from a record high on Oct. 31, with losses accelerating after Trump’s election victory last week.
Chinese investors are snapping up stocks tied to high-flying metals from copper to gold, aiding an onshore market facing an uphill battle to cement a nascent rebound.
A gauge tracking resources firms listed in Shanghai and Shenzhen has gained 10% in the past month, becoming the best sub-index of the CSI 300 benchmark. Zijin Mining Group Co., a major gold and copper producer, and Shandong Gold Mining Co. have led the rally and both gained over 20% in this period.
Driving the demand for producers of base metals like copper were signs of a recovering industrial sector in China, a domestic supply squeeze and expectations for global interest rates to drop. While gold is another beneficiary of monetary easing, the fervor for the precious metal also highlights Chinese investors’ hunger for yield as the country’s property woes deepen and returns on bank deposits dwindle.
Those factors “are leading to bullish views on copper price and stocks” including Zijin Mining and CMOC Group Ltd., Morgan Stanley analysts including Rachel Zhang wrote in a note. Similarly, aluminum producers such as Aluminum Corp. of China Ltd., and China Hongqiao Group Ltd. may continue enjoying high margins in the medium term due to supply tightness, they wrote.
The sector’s stock rally has coincided with a commodities bull run that has sent gold to new records and copper toward a 15-month high. It’s one of the few remaining tailwinds behind China’s local equities that have started languishing again after two months of gains.
CSI 300, which is dominated by state-run, old-economy stocks from liquor makers to banks and industrial firms, has risen 2.2% this year and remains one of the world’s worst performing major indexes. A gauge of Chinese firms listed in Hong Kong, which also features some of the nation’s most innovative technology companies, is up 4.3%.
To some observers, however, the rally in metal stocks is already looking a bit bubbly.
“It remains unclear whether China’s economic recovery is solid enough,” said Shen Meng, director at Chanson & Co. in Beijing. “The recent sharp gains were also driven by hot money, whose real motivation is seeking immediate returns.”
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