On April 8, the Chinese A-shares faced a downturn, with the stock indices fluctuating downward throughout the dayHowever, the precious metals sector bucked the downward trend, benefiting from a recent surge in gold prices, and experienced substantial gains.

Observations from the trading floor revealed that the precious metals sector was particularly active amidst the broader market slumpFor instance, Xiaocheng Technology saw its stock rise by 18.13%, while Zhongrun Resources reached its daily limitOther gold stocks like Jingu Silver Industry and Sichuan Gold also reported notable gainsHowever, the gold stock ETF (159562), which had previously experienced three consecutive days of trading limits, quickly fell to its limit due to an excessively high premium.

The continuous rise in gold prices has spurred a flurry of investment activity in the secondary market

This begs the question of how long the gold sector can maintain its momentumThere are concerns about potential negative factors in the short termFund managers have cautioned that rapid price increases might lead to profit-taking, introducing a risk of market corrections.

The popular Gold Stock ETF experienced a rapid halt in trading following its resumption.

Recently, the international gold market has experienced significant surges, with both gold futures and spot prices reaching historical highsOn April 8, the Gold Stock ETF (159562) opened and quickly hit its daily limit down, which was a direct consequence of the soaring gold pricePrior to this, the ETF had enjoyed three consecutive days of limit-up trading.

In an announcement, Huaxia Fund stated that its Huaxia CSI Hong Kong-Shenzhen Gold Industry Stock ETF would be halted from trading due to significant premiums that were markedly above the fund’s net asset value

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This decision aimed at protecting investors' interests, leading to a suspension from the market opening until 10:30 on the same day.

The trading of Gold Stock ETF had previously been suspended due to holiday influences, and when trading resumed, the daily limits on purchases were liftedOn April 2 and 3, the fund imposed limits on the number of units that could be subscribed, set at 5 million and 10 million units respectivelyHowever, the fund lifted subscription limits on the resumption day.

It is important for investors to note that the ETF operates as a trading-oriented open-ended fundIts trading prices in the secondary market are subject not only to changes in the net asset value of the fund but also influenced by market supply, demand dynamics, systemic risk, and liquidity factors, potentially leading to significant losses for investors.

Reports indicate that the premium rate for the Gold Stock ETF (159562) had once soared to 30%, and even after hitting the limit down, the premium remained over 12%. Industry experts noted that retail investors chasing gains contributed significantly to the continuous limit-up trading, urging caution against the dangers of chasing high prices, as it risks being caught at the peak.

Fund performance indicates that those investing in gold-related funds have been rewarded handsomely

According to statistics from Wind, the Huaxia CSI Hong Kong-Shenzhen Gold Industry Stock ETF surged 27.27% in the first quarter, ranking it at the top of equity funds, while other funds such as Wanjia Double Engine and Invesco Great Wall’s cyclical selection also recorded around 20% gains for the year.

What downside risks should investors be mindful of during this “gold rush”?

Data from Wind shows that on April 8, the price of China AU9999 gold briefly broke through 560 yuan per gram, while the spot price of gold in London closed at $2329.57 per ounce on April 7, both reaching historic highsFurthermore, data from financial institutions indicated that the entire market’s gold ETFs had recorded net inflows for three consecutive weeks, totaling over 5.5 billion yuan.

As gold prices continue to set new highs, it raises questions about how sustainable this uptrend will be

Are there any short-term bearish indicators?

Guo Fanding, manager of CITIC Prudential's Global Commodity Theme Fund, noted in an interview that recent geopolitical risks abroad have repeatedly impacted the international gold price, driving it to record highsThis surge has drawn considerable market attention toward gold-related productsNonetheless, unlike physical gold, gold ETFs are fund productsEven though their net value is closely tied to gold prices, the prices in short-term trading can exhibit irrational fluctuations due to market emotions, which may cause individual ETFs to deviate significantly from their net value.

Fanding further remarked that given the rapid increase in gold prices, market speculation is high, with the COMEX gold futures net long positions reaching the highest levels in nearly two years

Should geopolitical tensions ease, there could be a potential correction in international gold prices in the short termHowever, he pointed out that medium to long-term factors such as U.Sgovernment debt issues and global central banks' continued accumulation of gold could prolong bullish conditions for gold.

“For investors, keeping track of these overseas geopolitical risks can be challenging, making high-frequency trading of gold-related products based on news events highly uncertainRather, it may be more reliable to observe changes in macro data such as U.Sgovernment debt deficits and central bank gold reserves to assess the long-term trends of gold assets,” remarked Fanding.

“Currently, the market is returning to a logic driven by macro fundamentals

It appears that until the Federal Reserve concretely initiates rate cuts, short-term gold prices may remain volatile and highGiven the strong finish of the first quarter, traders will await further economic indicatorsAfter speculative net longs reached peak levels, they experienced a slight declinePost-Easter holiday trading dynamics might weaken, and the swift climb in prices could bring about profit-taking risks, especially with crucial employment data for March expected to be released this week,” stated a representative from Guotai Fund.

Fund Manager: Long-term bullish trend remains unchanged.

“We believe that as U.Sgovernment credit declines and global de-dollarization progresses, gold assets continue to hold long-term allocation value

Furthermore, overseas risk events may continue to disrupt capital markets, leading to gold assets providing effective risk hedging,” Fanding concluded.

Fanding suggests that, aside from investing in physical gold, individuals can also more conveniently allocate gold assets through related fund productsGiven the recent volatility in the foreign exchange market and deviations from the dollar's middle price, QDII funds investing in overseas gold assets may offer additional safety netsAs the dollar converges toward its middle price, QDII funds could potentially yield extra benefits over domestic funds.

The prospect of rate cuts by the Federal Reserve is favorable for gold prices, but what's crucial is the implied dollar credit risk stemming from high U.S

debtManager Lan Xiaokang of the China Europe Dividend Optimizer Fund noted, “The probabilities of these two occurrences are risingHence, we maintain an optimistic attitude toward gold's futureShould any events heighten concerns over dollar credibility, gold's price elasticity will increase, possibly even surpassing the responsiveness of gold stocks.”

From a mid-term perspective, Guotai Fund experts anticipate that the Federal Reserve may initiate rate cuts within the yearThe combination of reduced inflation and fluctuating economic performance constitutes a favorable trend for gold pricesRecent geopolitical risks are emerging more frequently, indicating that overall market uncertainty may rise, which in turn drives safe-haven demand supporting gold pricesAdditionally, the central banks' purchasing rhythm of gold continues to push the pricing center of gold upward.

Looking to the long term, Guotai Fund argues that the overarching trend of global economic recession, the increased demand for gold from central banks, and the de-dollarization movement all suggest that gold may serve as a new pricing anchor