Investments get golden edge as new frontier beckons

Two women admire a gold bracelet at a jewelry shop in Suzhou, Jiangsu province. [Photo/China Daily]

When 52-year-old Ma Aiju invested 100,000 yuan ($15,150) in gold futures online in late August, her hands trembled while tapping the laptop's keyboard to enter her details.

Until that point, gold bars and jewelry were the preferred investment option for the Shanghai-based Ma. She had invested bigger sums in the past; but, somehow, futures was a new frontier and appeared "scary".

"I don't see one bit of gold (in futures), and money flows in and out, and when you look at the price index's surges and dives, your heartbeats accelerate and you can't sleep well," she said, laughing, resting her palms on her heart.

Investors such as Ma are diversifying their portfolios. Gold is in. Yields from such investment channels appear stable relatively.

"If you sub-categorize gold investments, you'll see physical gold, gold futures and gold-backed (exchange-traded) funds. They all produce different results," said Ma.

Analysts said investors now have more gold-related investment channels than ever.

According to Thomas Huang, deputy CEO with Harvest Wealth Management Co Ltd, investors can choose from at least three ways. To wit, gold futures, stocks of gold-related companies such as miners and processors, and gold-backed ETFs. These are besides the option of buying physical gold.

While physical gold yields profits only if its price rises, the gold futures market enables investors book profits from shorting, giving more flexibility.

Also, fluctuations in prices of shares of gold miners, processors and jewelry retailers may be wider than that of physical gold because more factors are at play, like investor sentiment, government policy, company performance and speculation, Huang said.

Investors are slowly learning to appreciate the nuances underlying the pricing rationale behind various types of gold investments.

"For gold jewelry, the costs of material, processing, branding and marketing are considered. For gold bars and coins, you need to take the cost of delivery and storage into consideration. As for ETFs and gold futures, prices can be more volatile as more factors affect the market," said Wang Bowen, 41, an investor in Shanghai who has been investing mainly in gold-backed ETFs.

Yields from these channels may vary and investors need to have clarity about their investment goals and risk tolerance, said researchers.

According to Wu Hao, a researcher with Guotai and Junan Securities Co Ltd, investors need to test their own risk tolerance and gain clarity about investment goals before making decisions.

"For example, margin trading in gold futures could be quite risky. If risk tolerance is not quite high, then investors should put only a small amount of money into this category and more in ETFs and paper gold," said Wu.