Chinese investors are pulling money out of gold-backed ETFs at a record pace and putting it into local stocks. In July, four major gold ETFs—Huaan Yifu, Bosera, E Fund, and Guotai—had a total outflow of about 3.2 billion yuan (US$450 million). This trend comes as the CSI 300 Index rose by 5.5% in July, marking its best performance since September. Investors are taking profits from gold, which has increased by around 25% this year, but has stabilized since April.

Investment Trends

Chinese stocks are gaining strength thanks to government actions aimed at reducing price wars and overproduction. Commodity stocks have rebounded after three years of poor performance, thanks to supply-side reforms and a $167 billion hydropower project in Tibet. However, equity ETF flows in Shanghai and Shenzhen have recently been negative. With Chinese investors selling gold ETFs and buying local stocks, there’s a clear shift happening. The notable outflow of 3.2 billion yuan from key gold funds in July indicates that investors are locking in gains. This money is now being used to chase returns in the domestic stock market. The CSI 300 Index is up 5.5% this month, showing renewed investor confidence. Given this momentum, traders might want to consider buying bullish positions on Chinese stocks through derivatives. This could mean buying call options on A-share ETFs like the Xtrackers Harvest CSI 300 (ASHR) to capture potential gains in the coming weeks.

Economic Indicators

This optimism is backed by new economic data. China’s official manufacturing PMI for July is at 50.8, which is above expectations and signals growth for the fourth consecutive month. This suggests that government stimulus is positively impacting the economy, driving the stock market rise. Meanwhile, the price of gold has plateaued since its peak in April 2025, mostly trading sideways. After a 25% rise this year, the withdrawal by major investors could create challenges ahead. We should consider strategies that take advantage of this weakness, such as buying put options on the SPDR Gold Shares (GLD). Historically, similar patterns have occurred. After gold peaked in 2011, it entered a long bear market as investors turned back to other assets. The current outflows from Chinese ETFs might be an early sign of a similar, though smaller, shift in sentiment. A relative value trade is fitting for now. We could go long on CSI 300 futures while simultaneously shorting COMEX gold futures. This strategy would profit if Chinese stocks continue to outperform gold, shielding the trade from broader market fluctuations. However, we should be cautious since overall equity ETF flows in China remain negative. This indicates that the current rally might not be widespread and could focus on sectors supported by the government, like commodities. Targeting these specific areas may be a smarter move than betting on the whole market. Create your live VT Markets account and start trading now.

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