Rising investment demand for gold has been a key factor behind the yellow metal’s record-setting run in recent years, and this trend appears to be gaining the most steam in China.
In a report entitled “Golden Opportunities,” J.P. Morgan presented a thorough analysis on the Chinese gold market and the positive implications it has for the price of the yellow metal moving forward.
“The China Gold Association expects that Chinese gold investment demand will double within the next two years, and that total gold demand will grow by more than 20% this year,” the report noted. ”Going forward, we believe the widening structural deficit in the supply and demand picture, long-term demand for gold jewelry in China, India and other developing countries, persistent concerns regarding inflation, as well as the less transparent factor of sovereign purchases (that is likely to skew demand to the upside), will continue to give long-term support to gold prices.”
J.P. Morgan went on to say that it expects further strong sales growth for “leading Hong Kong and Chinese jewelry retailers that benefit from the rise in gold prices and are able to expand margins along with rising gold input costs (without bearing the risks associated with mining and exploration).”
The firm identified several gold retailers listed in Hong Kong and mainland China – including Luk Fook Holdings International Ltd (590 HK), Lao Feng Xiang (600612 CH), Chow Sang Sang Holdings International Ltd (116 HK), Zhejiang Ming Jewelry (002574 CH) and Tse Sui Luen Jewellery International Ltd (417 HK) – as potential investment opportunities.
In spite of new record gold prices in recent months, J.P. Morgan noted that “gold jewelry retailers we have spoken to in China indicate that there has been continued strong growth in sales as of late…This corroborates anecdotal findings in the latest WGC (World Gold Council) report.”
As for U.S. gold equities, the firm wrote that they are “still favored as hedges against uncertainty…J.P. Morgan favors gold mining companies with strong growth profiles to compensate for the negative effects of rising energy, asset, and labor costs.”
It also pointed to research analyst John Bridges’ top picks – which include Goldcorp (GG), Kinross Gold (KGC), and Newmont Mining (NEM).