Two gold-backed ETFs launched in Shanghai

Chinese gold investment demand surged from 15 metric tons in 2006 to 274 metric tons in 2012, according to data from the World Gold Council. [Photo / China Daily]

China launched two gold-backed Exchange-Traded Funds in Shanghai on Monday, a vital role in the opening-up of the country's gold market, said analysts.

Their prices dropped slightly on their first day of trading. HuaAn Gold ETF fell some 1 percent, while Guotai Gold ETF was down 0.6 percent.

The transaction value of HuaAn Gold ETF totaled 369 million yuan ($60.14 million) with a turnover rate of 30.68 percent, making an active trading day, according to the fund company's announcement on Monday.

Continued innovation in the range of gold investment products available across a range of countries including gold accumulation plans in China confirms the healthy appetite for gold among investors, said Yang Yijun, chief analyst with Wellxin.com, a precious metals consultancy.

The two funds raised a combined 1.6 billion yuan in their initial funding round. The total funding was lower than expected because of falling gold prices and the recent liquidity crunch, said Yang Fei, an analyst at Seewonder Financial in Shanghai. He added investors are also increasingly interested in gold-backed financial derivatives.

The launch and trading of the two ETFs have been closely observed by market insiders because they illustrate local investors' appetite for paper gold, according to Yang.

Chinese gold investment demand surged from 15 metric tons in 2006 to 274 metric tons in 2012. China is going to overtake India as the world's biggest buyer of gold in 2013, according to data from the World Gold Council.

"It takes more experience, knowledge and guts to deal in gold-backed funds. Interestingly, more investors are working hard to expand their vision for investment in gold," said Yang.

By July 19, institutional investors held 56.3 percent of HuaAn Gold ETF's total shares while individuals held 43.7 percent. Shares held by institutional investors account for some 96.5 percent of Guotai's Gold ETF total.

The Shanghai Stock Exchange released guidelines for gold-backed ETF trading on the evening of July 26 ready for the launches of the two ETFs on Monday. Investors can sell their holdings on the same day of buying, according to the guide.

Xue Ke, chief analyst and deputy general manager with Tianjin Jinhengfeng Precious Metals Management Co, said investors in China need to clarify their investment goals before they can make a reasonable choice for their portfolios.

As infrastructure surrounding the trading of gold is yet to mature in China, an emerging market, the market's pricing power for gold is relatively weak compared with that of mature markets. China's investors need to consider global economic and political situations, elements that may affect gold prices, said Xue.

Despite numerous headwinds, emerging markets, responsible for the majority of physical gold demand, are showing signs of improvement, according to the World Gold Council.