Wealthy investors are moving their gold out of Hong Kong. This trend started in 2019 when the normal pace of life in the thriving city-state was disrupted by violent anti-government protests. This year, the outflow of physical gold has accelerated. Last year, China imposed the tough national security law on Hong Kong. So, the rich have taken away to safety almost 10% of their gold holdings. This is only the beginning.
According to gold dealers, their clients fear that the draconian law could “snowball into concerns about safety of bullion and even certainty of property rights." So, they choose countries with milder jurisdictions like Switzerland and Singapore as the shelter for their valuables.
"Many clients now perceive Hong Kong as riskier than other jurisdictions," one of gold dealers comments on the reasons behind the gold run. Gold holders have financial acumen to avoid losses.
China’s law is the main cause of their concern. It poses a threat to the state autonomy and the supremacy of the statute legislation. Critics say it violates the "One Country, Two Systems" principle that has been in force since 1997. Besides, never-ending jitters between Washington and Beijing generate extra risks and uncertainty as both sides carry on slapping sanctions on each other. This adds to the overall uncertainty and market turbulence. On the one hand, large market players want to benefit from the stunning gold rally. On the other hand, they want to play safe.
China is one of the top global gold consumers, though exports of the precious metal are restricted by the legislation. Until recently, Hong Kong served as storage for bullion belonging to China’s mainland investors. However, China’s security law tightened an authoritative grip over the island. Interestingly, some gold analysts do not see extreme geopolitical risks in Hong Kong. The thing is that clashes are leading to a rise of crime in the city that scares away investors.
