Gold continues to shine for wealthy investors

High-net-worth individuals are currently prioritizing the security of their asset allocation, making gold one of the favored types, the World Gold Council found.

Global gold markets saw unprecedented market highs in recent days, with international gold futures and spot prices reaching historical highs and domestic demand for gold also continuing to rise. The New York gold futures once reached US$2,152.30 per ounce on Monday while London spot gold peaked at US$2,146 per ounce.

The rally not only captivated investors but also sparked a surge in domestic gold consumption, with some brand jewelry prices in China climbing to 630 yuan (US$87.9) per gram.

To serve as a platform for analyzing gold's performance and its increasing importance in investment portfolios, the China (Shanghai) International Gold Investment Forum was held on Tuesday, a gathering of financial experts and industry insiders that underscored the strategic significance of gold in today's volatile economic landscape.

Gold's appeal as a safe-haven asset has never been more apparent, according to Juan Carlos Artigas, global head of research at World Gold Council, noting that the central banks' robust demand for gold, doubling compared to their long-term average, signified a structural shift in the global gold market.

The forum also shed light on the Chinese gold market's exponential growth. Zhang Yongtao, vice president and secretary-general of the China Gold Association, noted that the Shanghai Gold Exchange's total gold transactions reached 16,900 tons from January to October this year, a 3.69 percent increase compared with the same period last year, with a transaction value of 7.48 trillion yuan, up 17.62 percent.

As investors navigate through geopolitical tensions and anticipate shifts in the Federal Reserve's interest rate policies, gold's allure remains undiminished. "We expect to increase gold's share in our asset allocation next year," commented Cui Bin, a senior expert at PICC Asset Management. "Gold's inclusion smoothens the investment risk-return ratio."

Wang Lixin, CEO of the World Gold Council China, emphasized gold's unique position as an independent asset free from sovereign credit risk. "In the current climate of geopolitical uncertainty and financial market volatility, gold's role in central bank reserves, institutional asset allocation, and family wealth management will become even more pronounced," Wang stated.

Preferred asset allocation

As part of the forum, the council released a report on the gold investment demand among high-net-worth individuals in China. It revealed that amidst tightening global financial market liquidity, geopolitical uncertainties, and intensifying trends of deglobalization, investors' concerns about global financial market risks persist.

In this context, gold's strong performance since 2022 has attracted the attention of global institutions. Global central banks purchased 1,136 tons of gold in 2022, setting a historical record, with China's central bank also increasing its gold holdings for twelve consecutive months.

For high-net-worth individuals, their cautious and stability-seeking mindset is reflected in their focus on the safety of asset allocation, said Jia Shuchang, a senior analyst at the World Gold Council. The survey showed that wealth preservation (56 percent) and wealth safety (53 percent) have become the primary goals of wealth management for high-net-worth individuals, surpassing wealth appreciation (51 percent).

"Cash and savings" have consequently become the most favored assets among high-net-worth individuals, with gold ranking the 5th (29 percent) among eleven types of asset allocation, showing a certain degree of alignment with the wealth management goals of high-net-worth individuals. "Appreciation potential," "hedging," and "high liquidity" are the main driving factors for high-net-worth individuals to invest or consider investing in gold, according to the report.

"In 2024, we will still face many uncertainties that may affect investment returns and cause market volatility. In this context, we emphasize gold as an excellent asset choice that can not only provide stable returns but also effectively diversify asset risks and hedge against potential risky investments. Including gold in the investment portfolio can improve the overall risk-return ratio compared to traditional investment portfolios," Jia said.

The survey also showed that 29 percent of high-net-worth respondents have invested in gold, while a proportion of 61 percent of high-net-worth individuals are at the stage of having the intention and recognition of gold investment but have not yet put it into practice.

The other 10 percent of respondents, however, hold a refusal attitude towards gold investment. The main reasons for this reluctance are unfamiliarity with market information and a lack of understanding of gold. For those who refuse to invest in gold, the volatility of gold prices, a lack of recognition of gold as a strategic investment asset, and its return rate are the main reasons, it said.