The beginning of gold trading by individual investors on the Shanghai Gold Exchange (SGE) later this month is expected to provide a welcome alternative at a time of high stock market volatility.
The SGE 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. Based on the closing price of 161 yuan per gram for Au100g and 159.30 yuan per gram for Au99.99 on the SGE yesterday, each lot is valued at around 16,000 yuan.
It's widely seen as quite a low threshold for individual investors to participate in the physical gold market.
"The upcoming trading (of physical gold) is expected to be very active in the near future, for the relatively low threshold would pull in more individual investors to the market," said Li Jingyuan, an analyst with Hai Fu Futures Co.
According to the SGE, the maximum trading commission is set at 0.21 percent of the total trading value, with the SGE charging no more than 0.06 percent and the commercial bank, acting as agent, no more than 0.15 percent.
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, according to Tong Gang, spokesman of the SGE.
Analysts noted that trading of tangible physical gold itself would attract many more individual investors.
"Compared with the previously traded products for individual investors on the SGE, paper gold for example, the trading enables investors to deliver tangible physical gold and would hence attract many investors," said Tang Mingrong, an analyst with Ling Rui Gold Investment Co.
"The increasing need of hedging risks by individual investors spurs the launch of physical gold trading," Tang said.
Buying gold is widely seen as an effective way to reduce risks in an investment portfolio, as gold prices remain relatively more stable in times of economic and market uncertainties. Concerns about worldwide inflation also add to the charm of investing in gold.
"The further opening of the gold market to individual investors would provide them more investing channels and alleviate the excess liquidity in the nation's financial market," said Wang Lixin, general manager of World Gold Council, Greater China.
(China Daily July 4, 2007)