China's Gold ETFs "Will Boost Demand" in World #2

Western investors "not wise" to dump gold positions on 2013 price drop...

 

GOLD EXCHANGE-TRADED FUNDS are to be launched in China, the second largest consumer of gold.

 

Exchange traded funds enable investors to track the gold price, minus expenses, by buying shares in a trust which holds physical bullion.

 

China's new exchange-traded gold products will be traded like shares on the Shanghai Stock Exchange (SHCOMP), tracking movements of spot gold on the Shanghai Gold Exchange, say Liu Jianqiang and Li Yebin, spokesmen for Huaan Management Co. and Guotai Asset Management Co., the two companies who are starting the funds.

 

" Gold ETFs should help boost gold demand as they will make Chinese investments in the bullion much easier," said Zhang Bingnan, secretary-general of the China Gold Association, to Bloomberg.

 

Since gold ETFs were launched in Australia, Europe and then the United States starting in 2003, they have been successful at attracting gold bullion investment. The world's largest gold ETF, the SPDR Gold Fund listed in New York (ticker: GLD), saw its gold holdings double between 2008 and 2012, with the value rising to more than $75 billion.

 

This year's sharp drop in gold prices has seen Chinese buyers view this as an opportunity, rushing in to buy gold. After the recent decline, the new Chinese ETFs will be presented at the right time for investors, says Liu at Huaan.

 

But falling gold prices mean Western investors, on the other hand, cut their gold ETF holdings, pulling nearly $14 billion out of such products between January and May.

 

"The dumping recently of holdings in gold exchange-traded products by overseas investors may not prove to be a wise move," says the China Gold Association's Zhang.

 

China's new gold ETFs have yet to start raising funds, and target amount has not yet been determined. Altogether, total exchange-traded investment assets in the Asia-Pacific region are less than $80 billion, according to ETFGI, a London-based ETF consultancy, versus $1.5 trillion for all ETF assets in the US.