Chinese Mums to Gold Short Sellers: ‘Make My Day’

A powerful defender in Mom.

We’ve all become well schooled in the power of market investors to bring governments to their knees. George Soros shorted the British pound in 1992 and forced the Bank of England to de-value. During the Asian financial crisis in 2007, hedge funds forced a succession of countries – e.g. Thailand, Korea, Indonesia – to abandon the defense of their artificially inflated currencies, and wreaked international economic turmoil.

But now, has the almighty short-selling financial investor met his match - a nemesis in the unlikely form of the Chinese "Tiger" mom - when it comes to the price of gold? According to this SCMP article, retail gold buyers, led by Chinese mothers looking to stock up on gold for their daughters’ weddings, have been taking advantage of the 26% plunge in gold prices since mid-April to buy the shiny metal. During the Golden Week just ended, mainland tourists in Hong Kong alone bought “60 tonnes of physical gold, 50 per cent more than last year”. Many gold merchants ran out of stock, a situation apparently not seen in decades. As a result of this demand rush, gold prices have rebounded to approximately US$1,450 per ounce, much higher than the $1,300 price targeted by short sellers. Given the resolve of some of these physical buyers – “if the banks keep short selling gold, we will keep buying more,” declared one individual – short sellers may need to call it a day and close out their positions to avoid further losses.

Okay, so it’s an exaggeration to attribute all the buying interest to Chinese mothers. Pensioners and jewelry makers have also been pouring into the market. Nevertheless, the current stand-off may be a cautionary message for financial investors out to make a quick buck -  sometimes, assets have value to certain buyers that numbers simply can’t properly measure.