Gold News

China opens its gold markets

A real step forward in the opening of China’s gold markets...

A snippet from the latest weekly issue from

OVER THE LAST FEW years many reports have described how China’s gold markets have been opening up. We have commented in the that such changes have been superficial at best, but they have laid the groundwork for the eventual opening of the gold market in China.

   The acid test will come when the provincial and even rural centers in China have banks/jewelers that sell gold at prices close to – if not at – the prices to be found elsewhere in the world. With the infrastructural development of China moving at a fast pace now, this time is getting closer. One step that brings such a situation within reach of the broad Chinese public has now taken place.

   Initially, the Shanghai Gold Exchange has said it will open the physical gold market to individual investors in addition to letting them trade paper gold. Trading in physical gold has so far been limited to professional traders. Individual investors will be allowed to trade in the exchange's current physical gold products of Au99.99 and Au100g purity.

   The minimum lot for trading has been set at 100 grams (just more than 3 ounces). Based on the closing price of 161 Yuan per gram for Au100g and 159.30 Yuan per gram for Au99.99 on the SGE of late, each lot is valued at around 16,000 Yuan – equivalent to $2,111. Without a doubt this is likely to entice even small investor to the market if it is publicized sufficiently.

   Even more to the point is the extremely low level of the commission structure, even lower than moving money from one account to another in Western Banks. According to the SGE, the maximum trading commission is set at 0.21% of the total trading value, with the SGE charging no more than 0.06% and the commercial bank, acting as agent, no more than 0.15%. A main selling point is that investors can take the bullion home at cheaper prices than that charged by jewelers and coin makers. For instance, investment-grade bullion commands more than a 10% premium in the market.

   But keeping with a closely regulated market, a prospective individual investor must first open a trading account with "the qualified commercial bank". The SGE said Industrial Bank would be the first bank to transact the trading of physical gold for individual investors. Other banks to be assigned with the business by the SGE have not been fixed.

   Nevertheless, compared with the previously traded products for individual investors on the SGE, such as paper gold for example, this type of trading enables investors to deliver tangible physical gold – and that should broaden the market significantly.

   But let’s wait and see what happens. In true Chinese governmental style, the broadening and freeing up of the Chinese gold market has been moving ahead at a snail’s pace. But this step should be an important one for gold itself. If it is accompanied by a spread of these products across the nation, then we are moving towards a real tapping of Chinese gold demand, one that has almost unlimited potential. Indeed, annual volumes of demand still below 300 tonnes could eventually grow to approach a four-figure level if the gold market can bear it as a truly free Chinese gold market develops.

   The Shanghai Gold Exchange will launch individual gold bullion trading nationwide in July, by teaming up with Industrial Bank. The exchange will hold a joint briefing with Industrial Bank about this service in the first part of July, said the gold bourse this week. It will later launch trading through Huaxia Bank. Industrial and Commercial Bank of China is likely be the third player to join the scheme.

   The Shanghai branch of ICBC started a trial program of individual gold trading in July 2005, where investors can take bullion home. The branch cut the trading threshold from 1,000 grams to 100 grams last December to boost its market appeal. By last Friday, 3,301 investors had opened gold-trading accounts at the branch. Turnover was 6,081.3 kilograms in 2006, and so far this year is 1,476.3 kilograms. The bourse said earlier this month that it would join hands with more commercial banks to trade gold for retail investors.

   We believe if this scheme is effected professionally, Chinese gold demand will accelerate rapidly from now on.

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JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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