Gold demand in China, in particular, investment demand, has benefited from rising concerns for the economy as well as the lowered opportunity cost amid the COVID-19 outbreak and the central bank’s response to it. But with signs of a potential economic recovery emerging, can we expect gold’s attractiveness as a safe haven in China to fade? We believe that the answer is ‘No’.
Gold has been centre-stage in China so far this year
The COVID-19 outbreak has had an unprecedented negative impact on the Chinese economy. City lockdowns and strict travel restrictions to contain the pandemic have led to suspensions in most Chinese industries for the majority of Q1. As a result, China’s GDP in Q1 contracted by 6.8%, the largest drop on record. This unforeseen economic contraction worsened many investors’ already gloomy outlook for China’s growth, lifting their demand for safe-haven assets such as gold. Consequently, gold has outperformed all major Chinese asset classes in the first half of 2020.