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China plans to establish a US$16 billion gold fund to stockpile the precious metal, in a move expected to provide a jolt to flagging prices.
State-endorsed media in China has reported that Shandong Gold Group and Shaanxi Gold Group will take stakes of 35 per cent and 25 per cent respectively in the new fund alongside other investors, as part of a scheme known as the “Silk Road” initiative aimed at boosting trade.
The new entity, which may include an exchange-traded fund for gold and investments in miners of the precious metal, aims to raise the US$16 billion in three tranches, according to the report.
News of the fund could restore some impetus to the gold market, which has been struggling to offset the growing strength of the US dollar. Gold fell below the psychologically important $1,200 per ounce level at the start of the week as traders bet on the timing of an expected rate rise by the US Federal Reserve this summer.
China is the largest producer and consumer of the precious metal, playing a significant role in determining the overall direction of the gold market. According to the World Gold Council’s latest market analysis, jewellery demand in China fell by 10 per cent year-on-year in the first quarter as slowing economic growth hit consumer sentiment in the world’s second-largest economy.
“A lack of consensus over the likely future direction of gold prices further hindered demand,” said the report.
However, news that China may be poised to establish a major new investment vehicle focused on gold could provide a significant boost to the market, which has see-sawed amid uncertainty over the timing of the Fed’s expected rate rise.
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