China’s gold rush  
  
„  UBS’ view on gold: raises price forecasts, investment demand in question  
On 2 February 2010, UBS raised its price forecasts for all commodities, including
gold, which it raised 8% and 28% to US$1,135/oz and US$1,250/oz for 2010 and
2011, respectively. Gold is UBS’s least favoured metal for 2010, as the global team
expects gold ETF investments to fall around 30% after a 290% YoY rise in 2009.
„  Overview of China’s gold market, supply and demand
China is not only the world’s largest gold producer with a 12.1% share of the
global market in 2008, but it is also the world’s second largest gold consumer with
a 12.9% share. However, its official gold reserve ratio is among the lowest in the
world, despite it having the highest foreign reserves. We believe China’s consumer
and official demand for gold will continue to rise steadily over the next few years.
„  China versus the world: gold equities
A comparison of the performance of China gold stocks with global peers suggests:
1) China stocks, particularly A shares, have a lower correlation with the gold price
than peers in developed markets; and 2) seasonality exists. However, while H
shares follow the global trend, A shares are non-conformers.
„  Stock picks: most preferred Zhaojin, least preferred Shandong Gold
We use a P/NAV valuation methodology, which is also adopted by the UBS metal
teams in North America and Australia. We have developed a quantitative and
qualitative approach to compare the relative merits of one company with those of
others. We initiate coverage of Zijin Mining-H with a Buy rating, Zhongjin Gold
with a Neutral rating, and Zijin Mining-A and Shandong Gold with Sell ratings.
We assume coverage of Zhaojin Mining Industry (Buy) and raise our price target
from HK$9.30 to HK$22.40.