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Stock woes trigger a new gold rush among private investors

By Ma Zhenhuan (China Daily)
Updated: 2009-10-12 08:02

One-kilogram gold bars are displayed at a department store specializing in precious metals and stones in Beijing. The World Gold Council said that despite rising gold prices globally, Chinese investors' demand for gold led to a recent surge in sales. [Agencies]

More Chinese investors are shifting to gold-related products to hedge against the recent stock market fluctuation and potential inflation.

But investors "need to be especially cautious against underground gold speculation", warned a top gold official.

"Chinese investors traditionally are more inclined to buy gold to hold value over time, and demand for gold-related products has been robust in recent years," said Wang Zhe, president of the Shanghai Gold Exchange.

"But the public still lacks enough knowledge and channels for such investments, leading to a recent rampancy in illegal gold speculation activities with many suffering huge losses," Wang said.

Statistics from the World Gold Council showed that despite rising gold prices globally, Chinese demand for gold experienced a surge in the second quarter, rising 9 percent year-on-year -- in sharp contrast to a 9 percent drop globally during the same period.

For consumption of gold jewelry, China was also the only exception, reporting a positive rise of 6 percent in tonnage relative to the second quarter of last year, due to the relative stability in renminbi and gold prices, and the resilience of the Chinese economy to the global economic downturn, the World Gold Council said in its second quarter report released in late August.

The impact of high gold prices has led to a widespread decline in gold jewelry consumption worldwide, down by 22 percent compared to the second quarter of last year, the council reported.

For Chinese investors, gold-related products likely are being considered a safe haven in an economic recession, with the recent stock market slump prompting more to rush to gold.

Chen Yimin, a veteran stock investor in Shanghai, told China Business Weekly that she diverted 300,000 yuan from her stock account to buy online gold trading products from China Merchants Bank in July.

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Fear of a continuing stock market slump prompted the move, she said.

"I know many friends around me are doing the same. Mainly we invest in gold for the purpose of value maintenance. You would usually not expect high returns from such products," Chen said.

Roland Wang, China head of the World Gold Council, said gold-related products have become a favorite pick for Chinese investors, in part because gold fluctuates less in international markets.

"Investors choose gold because they understand well the relative security of gold investments due to its low relevance to other financial products," Ronald Wang said, adding that China became the world's largest consumer of gold during the first half of this year.

Despite investors' growing enthusiasm for the yellow metal, their investment channels need to be further expanded to meet growing demands, Wang Zhe of the Shanghai Gold Exchange said.

The Shanghai Gold Exchange will continue to work with banks to map out more products for individual gold investment businesses, Wang Zhe said.

Major commercial banks have been busy launching their own gold-related products since the beginning of this year, in view of the ample market space and the investor gold rush.

Statistics showed that by the end of last year, 200,000 investors had opened gold trading accounts at Industrial and Commercial Bank of China, with trading volume exceeding 172 tons.