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Gold Trade Still Lackluster
Zhou Min never thought that ordering gold would still be so difficult in a free market.

Her company - Shanghai Laomiao Jewelry Co. Ltd, a leading jewelry and retailer in the city - had expected the opening of the Shanghai Gold Exchange on October 30 to make it easier to access gold bullion since it can directly deal with suppliers. Prior to the exchange's opening, the People's Bank of China - the central bank - allowed a limited volume of gold to be purchased to control the market with the result that there was a shortage of the precious metal.

Like other jewelry producers, Laomiao is arranging more gold bullion in preparation for the traditional shopping season in the weeklong Spring Festival holiday, which is two months away.

"In many cases, no one responded to our order until we raised the prices," said Zhou, vice general manager of Laomiao.

But a "short supply" - as the miners would say - has pushed gold prices in Shanghai higher than the world level, and her company had to hold back from buying enough materials for production, said the vice general manager.

The 99.99 percent-pure gold bullion in the exchange, the benchmark, settled at 85.6 yuan a gram or, US$324.49 a troy ounce, on Friday, compared with the US$318.6 per troy ounce on the international markets.

"The high prices here made us hesitant in sealing a deal. All in all, trading in the exchange is not (as) active as we have expected," said Zhou.

According to an exchange official, who declined to be identified, the exchange's current trading volume, which is 300 kilograms per day, translates into only one-third the daily size of China's demand for the metal in 2001.

The thin trading volume is due to the fact that in an attempt to control the quality of the bullion, not all gold bullions could be traded unless they are processed by authorized refineries.

In October, 10 gold refiners from across the country were named official bullion refiners by the gold exchange to secure the necessary standards of purity.

However, miners complained that some gold bullion, which meets the exchange's standard, cannot be traded here because they were not made in the appointed refineries, the exchange official said.

The best way to solve the problem is to allow more qualified re-fineries to make bullion for the ex-change, the exchange official said.

"Some candidates are going through our licensing procedure," he added.

But to some industry officials, lackluster trading in the one-month-old Shanghai Gold Exchange is not a surprise at all.

Speculative players, who play an important role in any active commodity markets, are not attracted to the exchange because of the absence of future contracts trading.

(Shanghai Daily December 2, 2002)

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