By Bloomberg News - Aug 20, 2010 8:48 AM GMT+0800
China’s gold producers will extend this quarter’s rally as demand for the precious metal increases and inflation exceeds government forecasts, according to Central China Securities Holdings Co. and Guoyuan Securities Co.
Zijin Mining Group Co. and Zhongjin Gold Corp., the nation’s two biggest bullion producers, are good investments as consumer prices are expected to rise around 3.5 percent this month, Li Jun, a Shanghai-based strategist at Central China, said in an interview yesterday. Inflation accelerated to 3.3 percent in July, the highest since October 2008.
“In this inflationary period, you need to find something that will preserve the value of your assets,” Li said. “Gold stocks and other metals producers with mining resources can provide a very good hedge.”
The Shanghai Composite Index rose 0.8 percent to a three- month high yesterday, led by gold and coal producers. A gauge of material stocks has advanced 22 percent this quarter, compared with a 12 percent gain in the benchmark index. Inflation last month exceeded the government’s annual target of 3 percent as flooding destroyed crops and pushed up food prices.
Gold demand in China, the world’s largest producer, gained in the first half as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said in July. China will let more banks import and export gold and open trading further to foreign companies due to rising interest in the precious metal, the People’s Bank of China said earlier this month.
China’s economy is cooling as the government trims credit growth from last year’s record $1.4 trillion and discourages multiple-home purchases to cool surging property prices. July industrial output rose the least in 11 months, retail sales growth eased and new loans climbed less than estimated.
Food Prices
Surging vegetable prices in China are increasing inflationary pressure, according to Deutsche Bank AG. Consumer prices may rise above 4 percent this month, said Jun Ma, Deutsche’s chief economist for Greater China.
Vegetable prices have risen 18 percent since July, while prices of eggs have increased 20 percent since June, reflecting the effect of floods, higher costs and hoarding, said Ma, ranked first in Institutional Investor’s 2010 All-China poll.
Inflation may slow in coming months as comparisons are made with higher year-earlier levels, the statistics bureau said Aug. 11. The government can meet a target of capping full-year price gains at 3 percent even as wages and global grain costs increase, spokesman Sheng Laiyun said.
Zhongjin Gold has advanced 24 percent this quarter while Shandong Gold Mining Co., the third largest, has climbed 20 percent. Zijin Mining has lagged with an 8.6 percent gain after it was forced to shut a plant in Fujian province because of the spillage of acid-laced waste.
Gold Rally
Gold has climbed 12 percent this year, reaching a record $1,265.30 an ounce in June, as investors sought protection against financial turmoil and currency debasement. The metal is on course for its 10th annual advance, the longest winning streak since at least 1920.
Bullion may rally to a record $1,300 an ounce in six months, driven by low interest rates and the prospect of renewed quantitative easing in the U.S., Goldman Sachs Group Inc. said last week.
“Buying metal stocks is a fairly good thematic investment in this inflationary period,” said Tu Hai, a strategist at Guoyuan in Shanghai, said in a phone interview yesterday. “It’s a strategy that protects asset values from being eroded.”
--Zhang Shidong. Editor: Allen Wan, Richard Frost
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net
From Bloomberg News published on Aug 20, 2010 8:48 AM GMT+0800
