Gold Price Forecast: Hang Seng and Bullion Rally Together—Coincidence or Trend?

• Gold and Hang Seng futures show a 0.91 correlation over the past month.
• Strong Chinese capital inflows into both markets suggest a possible link.
• Gold printed a bearish reversal near record highs, and momentum indicators weakened.
• Hang Seng remains in an uptrend, but an overbought RSI signals a possible reversal risk.

Summary

Gold isn’t typically top of mind when assessing directional risks for Hong Kong’s Hang Seng, and vice versa. But over the past month, the two have shown a tight relationship, suggesting more than just coincidence. With Chinese interest rates near record lows and property prices still below past peaks, could lacklustre returns in traditional assets be fuelling speculative flows into accessible markets?

Assessing Tight Gold-Hang Seng Relationship

You often come across tight correlations in markets, but they’re often just coincidence rather than a causal link between two variables. At first glance, you could easily say that about the recent relationship between gold and Hang Seng futures.

On a daily timeframe, the correlation coefficient between the two has been 0.91 over the past month. For gold and Hang Seng Tech futures, it’s even stronger at 0.93. That’s right, indicating they’ve frequently moved in the same direction—but does the correlation mean anything?

I’d argue yes given the evidence of growing participation in both markets from Chinese investors. Demand for gold bars in China has surged, and there have been strong capital inflows into Hong Kong equities from the mainland—two widely covered stories in recent weeks, suggesting a link between the two. Sure, it’s not the only factor driving recent price action in gold and the Hang Seng—think US import tariffs and DeepSeek, just to name two—but it’s not unusual to see frenzies in one market accessible to Chinese investors spill over into other asset classes.

Traditional Investments Unappealing

Source: TradingView

With Chinese government bond yields near record lows and home prices still under pressure, traditional investment options don’t look particularly appealing right now. That could be helping to drive capital flows into markets accessible to mainland investors, such as Hong Kong stocks and bullion. If that’s the case, as long as the correlation between gold and Hang Seng futures holds, price action in one market may provide clues about the other.

Gold Looking Toppy

Gold printed a key bearish reversal candle on Friday after failing to take out the record high of $2,942.70 set earlier in the week. While recent reversal patterns haven’t always resulted in deeper pullbacks, bullish momentum is showing signs of fatigue. RSI (14) has broken its long-standing uptrend, and while MACD hasn’t been confirmed yet, it too looks vulnerable to rolling over.

Source: TradingView

Gold remains in a strong uptrend, but the latest price action suggests a potential near-term top following its rampant early 2025 rally. For now, bids below $2,882.40 are preventing a deeper flush towards uptrend support around $2,850. A break below may see bears target a retest of $2,790, which would challenge the case for maintaining a bullish bias near-term. Conversely, if support at $2,882.40 holds, another push toward record highs could be on the cards.

Hang Seng Futures Overbought

Given the correlation analysis above, it’s no surprise that Hang Seng futures have followed a similar pattern to gold over the past month.

Source: TradingView

The price remains in a strong uptrend, with previous topping signals failing to trigger sustained downside moves. Momentum indicators like MACD and RSI (14) remain bullish, though RSI is in overbought territory above 70, flagging potential reversal risks.

Key topside levels to watch include 22,700, 23,330, and 23,870. On the downside, support may emerge at 21,728, 21,377, and the January 13 uptrend, currently just above 21,000.

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