Attempts by Wall Street funds to drive down bullion value through short selling thwarted by Asian mothers swooping in to buy for weddings.
Enoch Yiu and Daniel Ren in Shanghai
Gold prices are rising again as Asian mothers take advantage of the recent weakness in the price to buy jewellery.
Chinese mothers have beaten Wall Street hedge fund managers in forcing a turnaround in the price of gold after it dropped last month.
Taking advantage of the steepest drop in three decades, they have shored up prices by splashing out on gold for their daughters' weddings in the past couple of weeks, foiling the plan of finance gurus who have been short selling the precious metal in the hope of pushing it lower.
"The drop in gold price last month was caused by Wall Street fund managers who wanted to short gold and push it below the US$1,300 per ounce level before piling back in," said Haywood Cheung Tak-hay, the president of the Chinese Gold & Silver Exchange Society.
"These short sellers' dream has been shattered by buyers of physical gold worldwide, such as Chinese mothers, who seized the opportunity to buy cheap gold.
"This support has stemmed the price drop and brought gold prices back to the current level of about US$1,450 per ounce, far above the short sellers' target.
"I think short sellers will have their fingers burned on this one and be forced to buy back gold to cut losses."
Physical gold buyers worldwide, such as pensioners, retail investors and jewellery makers, apart from Asian mothers, all rushed to buy gold after the metal dropped 9.1 per cent on April 15, its biggest drop since 1983, to reach US$1,321. The frenzied buying, in which an estimated 300 tonnes of gold changed hands, helped prices to bounce back to about US$1,500.
Gold is still 25 per cent below the peak of US$1,920 it saw in September 2011. Cheung said that made the current level attractive to buyers, the reason why he believes the buying spree will continue to support the gold price.
"Once short sellers realise they can't beat physical gold buyers, they will wind up their positions. That would maintain the gold price at a more stable level before it reaches up to US$1,800 in the fourth quarter," he said.
Zhu Tingting, who works for a foreign company in Shanghai and is in her early 30s, is among those helping the gold rally. "We love gold and the prices look good," she said.
Gu Jiahui, a shopper in Shanghai who recently bought a 20gm investment-grade bullion bar, said: "We don't care about the wild swings in global gold prices. If the banks keep short selling gold, we will keep buying more. I have more faith in gold than the yuan."
During the three-day May Day holiday, when mainland tourists rushed to shop in Hong Kong, Cheung said the city sold 60 tonnes of physical gold, 50 per cent more than last year. Many jewellery shops in the city ran out of stock.
Cheung said: "Many gold shops have had to place fresh orders with the gold exchange. The exchange is handling five times more trading and delivery requests than usual. We have ordered more physical gold to meet the demand. Shops in Hong Kong can resume normal supply in about two weeks."
The Secretary for Financial Services and the Treasury, Chan Ka-keung, said many shops running out of stock was a situation not seen in decades.
This article first appeared in the South China Morning Post print edition on May 03, 2013 as Chinese mums force gold price rebound.