Bigger and more veteran investors usually go through gold trading companies or agencies, which are involved in trading at the Shanghai Gold Exchange. They at times own gold indirectly by buying shares in gold trust, gold mining stocks, gold options and futures.
China's fledgling gold market is still evolving. Gold futures only began trading this past January in China, offering a new hedge-risk tool for investors. However, some still fear this new product has certain drawbacks.
Zhou Zheng, one investor said "I think each gold future contract is too big, so it takes up too much capital. In addition, gold prices usually move little during the day, but become more active at night. It is very risky to hold it overnight. So I've chosen to limit the gold futures investment ratio in my total investments to a very small number."
Industry insiders also believed there’s still a lot of room for banks to improve their services in the gold market.
Li Wenfeng said "Currently, the gold products available are not perfect for investors. Our customers can only buy when gold prices are going up. With the opening-up of the market and inclusion of foreign banks, investors will be able to trade at both domestic and overseas markets, and be involved in both spot transactions and various gold derivatives. They will have a bunch of choices to seek returns and hedge risks."
A more serious problem is that many investors are indirectly involved in the overseas gold markets through private agencies. This is still not allowed in China, thus there is a lack of supervision. A few such agencies have suffered big losses, taking away wealth from investors with no hopes of recovering the loss.
But there are hopes of solving the issue as Chinese regulators allow foreign banks to participate in the local gold investment market. Industry experts are hailing it as a first step towards linking the domestic market to overseas.
Gold investments in China has grown by an average of 50 percent over the past 2 years. In 2007, gold sold to individual investors reached some 24 tons. Though the number may seem small, it represents a 60 percent jump over 2006. Meanwhile, a survey conducted by the Industrial and Commercial Bank of China shows increasing interests among Chinese consumers in gold investments.
Experts recommend each family should spend 3 to 5 percent of their assets to buy gold. In developing countries, the household average is 30 gram. But in China, the current figure is just three grams. China has nearly 400 million households. If even just half of these households invest in three grams, the market size will be huge. But what's more significant, owning some of this precious metal would help guarantee a family’s financial security and the country's wealth to some extent, in going forward.
(CCTV November 7, 2008)