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Gold Trading Loses Shine on First Day

Landmark gold trading was made available to individual investors yesterday. But the metal got the cold shoulder from local residents on the first day of trading.

"There were only two to three telephone calls asking for information, but no customers came to register," said Lu Feng, a wealth consultant at the Industrial and Commercial Bank's (ICBC) Yandang outlet in downtown Shanghai.

Detailed information from ICBC Shanghai branch was unavailable regarding trading in the whole city.

The Shanghai branch of China's largest lender, ICBC, teamed up with the Shanghai Gold Exchange on Sunday to announce the opening of the new trading platform through its "Jinhangjia" (Gold Expert) product, marking the milestone opening of physical gold trading yesterday to individual investors.

Previously, gold trading was reserved for the 100-plus corporate investor members of the Gold Exchange when it was launched at the end of 2002. Paper gold trading at two other banks, the Bank of China and the China Construction Bank in Shanghai, debuted earlier this year.

The difference between paper and physical gold trading is that investors in the latter can demand the physical delivery of the gold. Shipping expenses are only 2 yuan (24 US cents) a kilogram.

"We are not in the right position to say much on the product as it is only one product launched by ICBC, it is not the whole picture and maybe it will get better when customers get to know the product," said Tong Gang, an official with the Shanghai Gold Exchange's Information Department.

According to rules set up by ICBC's Shanghai Branch, individual investors can apply to register for gold trading at any of its nearly 60 outlets in the city, with an identification card and a registration fee of only 60 yuan (US$7.24).

But investors must have a lot of money before investing in this new business. They are required to buy at least 10 units, each unit weighing 100 grams, per transaction. With gold prices ending at 112.76 yuan per gram yesterday, anyone thinking of buying any gold needed at least 113,000 yuan (US$13,647).

"The threshold is high for individual investors," said Wang Lixin, chief representative of the World Gold Council's Beijing Office, "but (by setting up a higher threshold) the regulators hope to make the market more stable rather than speculative," he said.

Investors also need to pay brokers' fees -- 0.21 percent of the total transaction volume -- to ICBC before any deal is completed, 60 yuan (US$7.24) in registration fees and other exchange fees. These all affect profit margins.

"I will not buy this as it cannot generate much return for me," said a client surnamed Li at ICBC's Luwan branch. "I prefer to invest in long-term treasury bonds that are more profitable and safer."

Gold prices in international markets have been falling for three straight weeks, corresponding with declining oil and other energy prices. Gold futures for August delivery fell 30 cents to US$421.10 on the Comex division of the New York Mercantile Exchange.

(China Daily July 19, 2005)

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