Commodities have taken a beating lately from fears of a slowdown in China, but one battered metal could actually benefit from a hard landing in the world’s second largest economy, says Barclays.
Chinese demand for gold will likely benefit from a steep fall in the country’s economic growth, which could trigger a structural change in why people buy the precious metal as well as increase its safe haven appeal, Barclays Research said in a note on Wednesday.
“A hard landing could shake faith in the government and lead to a big fall in yuan-denominated assets, which could mean gold becomes important for domestic investors to hedge what they may view as a greater set of risks than previously,” Sudakshina Unnikrishnan, commodities analyst at Barclays said.
A significant slowdown in China could be the trigger for a change in the pattern of gold purchases as well, according to Unnikrishnan. This could lead the Chinese to move away from buying the precious metal largely during festivals, when inflationary pressures are high, or when there is a big fall in international prices, to adding gold more consistently to their portfolios.