Has gold still worth investing after it once fell below the $3400 mark?

Against the backdrop of a strong stock market trend, gold, which was once very popular earlier this year, is gradually losing its appeal.

As of the close of trading on August 12, U.S. time, the main COMEX gold contract on the New York Mercantile Exchange fell below the $3,400 mark at $3,399 per ounce. The day before, on August 11, the COMEX gold front-month futures contract on the New York Mercantile Exchange plunged nearly 2.5%, the biggest drop since May. Prior to this, the settlement price of COMEX gold futures on the New York Mercantile Exchange had remained above $3,400 an ounce in August. As of 16:30 Beijing time on August 13, its price slightly retraced to more than $3,400 per ounce. Not only that, the price of spot gold in London has also continued to fall, as of August 12, US time closed at $3348.02 per ounce, its price has fallen 1.4% from the August high. As of 16:30 Beijing time on August 13, its price was at $3,356.91 per ounce. In the Chinese market, the size of gold-backed ETFs has also continued to shrink. Wind data shows that as of August 12, the scale of seven gold ETFs based on the yield of China's gold spot price (SGE gold 9999) has shrunk by about 6.9 billion yuan in a month. Wind data also shows that in the past month, the scale of Huaan Gold ETF decreased by 3.1 billion yuan, and the scale of E Fund Gold ETF and Cathay Gold ETF decreased by 1.5 billion yuan and 1.2 billion yuan respectively in the same period. In the eyes of market participants, investors' enthusiasm for gold has declined as the global trade conflict has eased and market risk aversion has cooled. In addition, US President Donald Trump's statement that he would not impose tariffs on imported gold bars also sent gold prices tumbling. At the same time, China's onshore and offshore equities continued to rise, and funds also took profits from the gold market and shifted to riskier assets such as equities. Some people take profits, and some people secretly add to their positions. In the long run, in recent times, bank wealth management, public funds, private equity funds, etc. have increased their positions in the allocation of "gold +" type products. Many banks' "gold+" products control the asset allocation ratio of gold at 5%-10%. Among the private equity funds, the proportion of an insurance asset management global allocation FOF allocation to gold ETFs reached 15%; The performance benchmark of insurance asset management gold-driven products even sets the proportion of gold at 30%. The so-called "gold+" product generally refers to a multi-asset portfolio that allocates more than 5% gold in the performance benchmark or asset allocation strategy. The perception of the price of gold is the key to investors' decision-making. In the eyes of many investors, although gold prices have recently suffered consolidation, there is still a lot of bullish room in the medium and long term. UBS Wealth Management said in its latest report that under the baseline scenario, the target price of the international gold price is US$3,500 per ounce, and it does not rule out a higher gold price to US$3,800 per ounce. Goldman Sachs said in a report on July 13 that the international gold price may rise to $3,700 per ounce by the end of 2025 and $4,000 per ounce by mid-2026, driven by factors such as speculative funds and central bank buying. Wang Lixin, CEO of the World Gold Council in China, told Caijing that for ordinary Chinese investors, investing in gold can globalize their asset allocation. At the same time, against the backdrop of low interest rates in China, it can also increase its overall investment income. "Generally speaking, for ordinary investors, there are three difficulties in gold investment: it is difficult to make decisions, and it is difficult for ordinary investors to fully grasp the gold investment strategy; It is difficult to choose the right time, and it is not clear when to enter; It is difficult to hold, and you can't hold it after buying gold. 'Gold+' will be incorporated into bank wealth management and fund products, or to a certain extent, with the help of the management of professional institutions to help investors cope with the above challenges. ”

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China's Gold ETF Outflows Accelerate

According to Bloomberg aggregate data, four gold ETFs under Huaan, Bosera, E Fund and Cathay Fund have shown net outflows since May, and this trend has accelerated further since July. Specifically, in July, Huaan Gold ETF, the largest gold ETF, had the largest outflow of funds, with a decrease of 2.462 billion yuan, followed by E Fund Gold ETF, Cathay Gold ETF and Bosera Gold ETF, which decreased by 1.174 billion yuan, 593 million yuan and 369 million yuan respectively in the same period. This is contrary to the performance in the early days of the tariff war. At that time, four gold ETFs under Huaan, Bosera, E Fund and Guotai Fund received large inflows. The same is true for the overall performance of the Chinese market. Demand for gold-backed ETFs in China continued to be strong in Q2, with inflows of 61t in Q2, the strongest quarterly performance on record, according to data from the World Gold Council. In the first half of the year, China's total assets under management (AUM) increased by 116%, with total holdings surging 74% to 200t. The cooling of the tariff war and the decline in risk aversion in the market are a major contributor to this change. "The recent outflows from China gold-backed ETFs have been dominated by individual investors. Gold has been trading in a narrow range, and investors' enthusiasm for gold has declined. Li Gangfeng, an analyst at Commodity Discovery, a European mining fund, told Caijing. In recent months, spot gold prices have hovered between $3,300 and $3,400 an ounce. In contrast, at the end of April, the international gold price rose to a high of US$3,500 per ounce, up 6% for the month. On 11 August, Donald Trump announced that he would not impose tariffs on imported gold bars, sending gold prices tumbling again. On the same day, the international gold price fluctuated and fell by more than 2%, the largest decline in nearly three months. In addition, the rotation of funds in the market is also an important factor affecting the trend of gold prices. Goldman Sachs said in a research report on July 13 that international gold prices have been consolidating since April, but the underlying drivers have changed. Since 2024, the international gold price has had more speculative positions, but it has now retreated. As a part of the allocation of large types of assets, gold is accompanied by the transfer of funds to risk assets behind the outflow of funds out of its investment products. "At the moment, China's stock market is rising, and funds also see that now is the time to take profits from gold and turn to equities to chase stronger momentum." Li Gangfeng also said. In July, the Shanghai Composite Index rose by about 4.8%, and the Hang Seng Index rose by more than 6%, both rising to their highest levels in more than three years. As of the close of trading on August 13, the Shanghai and Shenzhen stock markets traded 2.16 trillion yuan throughout the day, an increase of 269.4 billion yuan from the previous trading day. Among them, the Shanghai Composite Index rose 0.48% to close at 3,683 points. Goldman Sachs said in a July 28 note that it maintained its overweight rating on the Chinese stock market (A-shares and overseas Chinese concept stocks), with an updated 12-month MSCI China Index target potential return of 11%. Goldman Sachs said that the easing of trade tensions between China and the United States is a key factor driving China's stock market to accelerate again, in addition to China's strong gross domestic product (GDP) data in the second quarter, the Chinese government's measures to deal with the "involution" of key industries, the recovery of Hong Kong's IPO market, and record southbound inflows are all key to the recovery of A-shares and H-shares. Against this backdrop, foreign investors are increasingly interested in Chinese equities. It also drives the rotation of the gold market, and there are also U.S. stocks. "Recently, U.S. stocks have continued to rise, and many investors around me have increased their risk appetite, and they have begun to sell gold and buy U.S. stocks." An investor told Caijing.

Institutions are still increasing their positions

Although gold ETFs in the Chinese market have retreated in the past two months, there are still some financial institutions that are deploying gold products in the long term. According to the statistics of the World Gold Council, in terms of bank wealth management, CMB Wealth Management, Industrial Wealth Management and other companies are increasing the proportion and setting the gold allocation center of "gold +" products between 5% and 10%. In the field of public funds, the data of the above-mentioned institutions also show that Fidelity Fund, Invesco Great Wall, GF Fund and other companies have a gold allocation center of 5% in the "gold +" products of fund types. Not only that, in addition to "gold+" products, as of the first half of 2025, the number of FOF fund products holding gold assets has also risen to 234, accounting for 45% of the number of FOF products in China. Historically, as of 2023 and 2024, there will be 98 and 192 FOF products holding gold assets. Many people refer to the above-mentioned wealth management products containing gold as "Gold+". According to the World Gold Council, "Gold+" products are generally multi-asset portfolios that allocate more than 5% of gold in performance benchmarks or asset allocation strategies, which are designed and managed by professional investment institutions to help individual investors carry out overall portfolio management. Individual investors can incorporate a certain percentage of gold into their portfolios, making it part of their long-term strategic asset allocation. This coincides with the views of many investment banks. In its latest report, UBS Wealth Management once again recommended that investors should include hedging instruments in their diversified portfolios and hold about 5% exposure to gold. In Wang Lixin's view, bank wealth management and fund products have long focused on equity and fixed income products, and there is still room for improvement in the attention to gold. If gold is included in the portfolio, it can diversify the asset allocation. The main reason for this is that, from the perspective of the global market situation, tariff policies and geopolitical conflicts have an impact on equity and fixed income products. Gold has a low correlation with other assets, which can hedge against currency and equity market volatility and enhance the resilience of the overall portfolio. From the perspective of the Chinese market, gold is a globally priced asset, which has a strong correlation with U.S. bond interest rates and the U.S. dollar index, and is essentially a part of overseas asset allocation. In the current environment of low interest rates in China, increasing the proportion of gold investment means increasing the proportion of global asset allocation. This can not only diversify the risk, but also improve the overall long-term investment return to a certain extent. "Most of the existing wealth management products in China are fixed-income assets. However, at present, the income that can be created by fixed income assets is generally not higher than 2%. On the other hand, the US dollar gold price has risen by 26% year-to-date; Over the past two to three years, gold has returned more than 20% on an annualized basis. Wang Lixin said. For example, the data of a bank's wealth management product shows that for a product that was established in November 2023 and closed on January 15, 2025, its take-profit yield is about 4.38%. Its asset allocation is mainly 80% bonds, 10% gold and 10% quantitative neutral products. However, Wang Lixin also reminded that the volatility of gold is still greater than that of fixed income products. For investors with a low risk appetite, the allocation to gold should be moderate. In addition, data from the World Gold Council shows that for long-term funds, insurance asset management has been allocating private placement products containing gold, and the reason behind this is that institutional investors are seeking long-term stable returns. In addition, the further opening of the gold market is also a driving force. In February, the insurance industry launched a gold investment pilot, and 10 companies had a potential 200 billion yuan of funds behind them. Around the world, many overseas long-term funds have invested in gold. For example, Bridgewater Fund will issue an "all-weather ETF" in 2025, with an allocation of 14% to gold. In addition, Japan's Nikko Asset Management issued a multi-asset asset management product, with a gold ratio of about 20%.

Is it still worth investing?

The perception of the price of gold influences the decision-making of investors. In the eyes of many investors, although gold prices have recently suffered consolidation, there is still a lot of bullish room in the medium and long term. UBS Wealth Management said in its latest report that it continues to be bullish on gold in global asset allocation. In the baseline scenario, the target price of the international gold price is US$3,500/oz. If the geopolitical or economic situation deteriorates, it cannot be ruled out that the price of gold will rise to $3,800 an ounce. Goldman Sachs said in a report on July 13 that the international gold price may rise to $3,700 per ounce by the end of 2025 and $4,000 per ounce by mid-2026. In Goldman Sachs' view, the pullback in speculative positions is creating space for structural funds (i.e., gold ETF inflows and central bank purchases) to flow into the gold market, which has become the main support point for gold demand. From the perspective of central bank demand, UBS said that the current pace of central bank gold purchases is still much higher than the average level from 2010 to 2021. From the perspective of China, according to China's State Administration of Foreign Exchange, as of the end of July, the People's Bank of China's gold reserves were 73.96 million ounces, an increase of 60,000 ounces from the previous month, and official gold reserves increased for nine consecutive months. Looking ahead, the recently released World Gold Council Central Bank Gold Readiness Survey 2025 shows that almost all respondents (69 out of 73) expect to increase or stabilize their gold reserves. 43% of respondents plan to increase their holdings in 2026 (compared to 29% in the 2024 survey), a record high. UBS expects that in the second half of 2025, the central bank's demand situation is expected to remain stable, and the annual buying may be in the range of 900 tons to 950 tons. Jia Shuchang, head of the research department of the World Gold Council in China, told Caijing that compared with previous years, the international gold price has risen greatly, which has affected the current pace of central bank gold purchases to a certain extent. However, the impetus for central bank gold purchases is more to diversify foreign exchange reserves, which will affect the trend of central bank gold purchases in the medium to long term. From the perspective of gold investment, UBS said that US President Donald Trump revealed a "high and light" attitude in the tariff negotiations, which warmed up the investment sentiment of risk assets. However, gold prices have now priced in improved risk sentiment, a strong rebound in the US dollar and a delay in the Fed's rate cuts. However, at present, the unexpected weakness of the US job market and the escalation of the tariff conflict have caused the market to retreat in risk aversion, prompting investors to turn their attention to gold again. In July, U.S. nonfarm payrolls rose by 114,000 in July, the lowest since December 2020. During the month, the unemployment rate rose 0.2 percentage points from the previous month to 4.3%, the highest since October 2021. In addition, the tariff conflict between the United States and India, Switzerland and other countries has escalated again in recent days. In the medium and long term, Li Gangfeng believes that the most important factor is to look at the dollar index. If Trump's tariffs cause a recession in the U.S. economy and trade tensions, central banks and investors may reduce their holdings of dollar assets. This is similar to quite a few points. Jia Shuchang also said that at present, the three major international credit institutions of Standard & Poor's, Fitch and Moody's, have all downgraded the AAA sovereign credit rating of the United States, and the US dollar credit problem has become a key factor driving the trend of gold.

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