The Growing and Evolving Gold Retail Investment Market in China

ALCHEMIST ISSUE SIXTY EIGHT 20 The Growing and Evolving Gold Retail Investment Market in China By Albert L.H. Cheng, Managing Director, Far East, World Gold Council The World Gold Council’s 2012 Q2 Gold Demand Trends report puts China’s gold jewellery and investment half-year demand at 400.1 tonnes, making it increasingly likely that China will overtake India to become the largest consumer of gold. China’s gold retail investment market has tripled in size since the establishment of the Shanghai Gold Exchange (SGE) 10 years ago in 2002, with ongoing growth suggesting that the country will remain a major player in the international gold market. Golden tradition jolted by modern history China has been infatuated with gold for thousands of years. This

auspicious element has always been associated with Imperial China and represented good fortune. Shanghai also has a particular history with gold: in the 1930s and 1940s, Shanghai was already a renowned financial centre in the Far East and was home to the largest gold trading centre in the region. In the new Chinese republic, the government decided gold was an important strategic resource and assumed management of it. In 1950, the People’s Bank of China introduced measures to control gold and silver trading. In 1983, the State Council issued new regulations that placed the control of all purchasing and distribution of gold and silver under the central government. Two decades passed before controls on the domestic gold market were loosened. On October 30, 2002, SGE was opened as part of a range of market-oriented financial reforms. The World Gold Council played an important role by sharing expertise and knowledge in the formation of this spot exchange gold market in China 1 . In 2004, China classified gold for investment and permitted individuals to invest in the precious metal. In late 2005, the SGE and the Shanghai branch of the Industrial and Commercial Bank of China (ICBC) launched the Jinhangjia, a spot trading product for private investors, thereby accelerating the development of China’s retail gold market. In December 2006, with marketing support from the World Gold Council, China Gold Group issued its first two-way trading gold bullion product – the China Gold Investment Bar – traded at the prices listed on the SGE with a tight margin for domestic investors. Since the Shanghai Futures Exchange (SHFE) launched the gold future in January 2008, gold futures trading volume has significantly increased; in 2011 alone 14.4 million contracts were traded. This gold futures market together with the spot trading of SGE form the basis of the Chinese gold market. A ripening retail investment market In the recent context of rising inflation, stagnation in domestic equities and government attempts to curtail a real estate bubble, individuals are exploring other alternatives to preserve their wealth. Gold is becoming an increasingly popular investment vehicle and the industry is responding rapidly by introducing more gold-related financial products. In our survey 2 conducted in February 2012, 57% of the 1,407 interviewed investors had gold as an investment at that time, and 71% planned to invest in gold during the coming year. Around 70% of existing gold investors found...

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