Illegal Gold Futures in China Hit 5,000 Investors

POLICE in China have closed an illegal Gold Futures service, arresting 33 people and accusing it of defrauding up to 5,000 investors of perhaps CNY 380 billion ($60bn).

"The suspects, who had been trading since October 2008, had never registered with industrial and commercial authorities, as required by the law," The China Daily quotes Guo Congbin, director of the public security bureau in Luoyang.

The world's #2 consumer of physical gold, China last November banned all Gold Futures trading outside the officially approved Shanghai Gold Exchange and Shanghai Futures Exchange.

The promoters arrested in Luoyang apparently claimed to be selling leveraged bets on the price of gold traded in London through a Hong Kong exchange.

"That is illegal on the Chinese mainland," says The China Daily.

According to Zhang Hui, head of the financial investigation team at the Luoyang public security bureau, the suspects claimed to be agents of overseas companies dealing. Promising high rates of return – and failing to state the risks of playing on the Gold Futures market – they charged what the Chinese press call "exorbitant consulting fees", and used a web of office addresses, mobile phone numbers and bank accounts from Hong Kong to Shanghai and the industrial region of Shenzen.

In physical Gold Dealing, "The Chinese market remains strong," says Philip Klapwijk, global head of metals analytics of Thomson Reuters GFMS.

"Chinese demand for jewelry will be similar to that of India in 2012, while China will have more gold bars than India this year," Klapwijk told AsiaOne earlier in July.

"So China is expected to be the world's largest market for gold consumption by the end of the year."

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