Gold Forecaster
- Global Watch
A real step forward, in
the opening of China's gold markets
Julian D.W.
Phillips
Gold Forecaster snippet
Jul 11, 2007
- Below is a snippet from the
latest weekly issue from www.GoldForecaster.com
Over the last few years a lot
of reports have described how China's gold markets have been
opening up. We have commented in the Gold Forecaster
that the changes have been superficial at best,
but have laid the groundwork for the eventual opening of the
gold market there.
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.
A step that precedes this and 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 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 [+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 S.G.E. of late, each lot is valued
at around 16,000 Yuan [U.S.$2,111]. Without a doubt this is
likely to entice even the small investor to the market if
it is publicized sufficiently.
And 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 S.G.E. 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 sold by jewelers
and coin makers. For instance, investment-grade bullion commands
more than a 10% premium in the market.
But in true regulatory style,
a prospective individual investor must first open a trading account
with 'the qualified commercial bank'. The S.G.E. 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 S.G.E. have not been fixed.
Nevertheless compared with
the previously traded products for individual investors on the
S.G.E., paper gold for example, this type of trading enables
investors to deliver tangible physical gold and 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 fewer than
300 tonnes could eventually grow to approach a four-figure level,
if the gold market can bear it, in a truly free Chinese gold
market.
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 the 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 I.C.B.C.
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, that Chinese gold demand will accelerate
rapidly from now on.
Please subscribe to www.GoldForecaster.com
for the entire report.
Jul 11, 2007
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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