Gold market to shine as China eases rules

SINGAPORE: China’s moves to free up its gold market open the way for foreign players and local banks to tap rising demand for the metal. They also offer citizens a more attractive investment and could boost China’s clout over global prices.

With the Shanghai Composite Index down 20 per cent this year, and gold prices still up 9 per cent despite a correction from a lifetime high in June, more retail investors are buying bullion as they diversify their wealth.

A clampdown on rampant property speculation could also drive investors to shift some hot money into gold, which many see as a sign of status and good fortune, as hopes for more Chinese demand pushed gold to a two-week high above US$1,200 an ounce this week.

Investors have long bet that China will eventually overtake India as the world’s top consumer, and Beijing’s move to allow more domestic banks to export and import bullion underscores the hunger for gold among the country’s middle class.

More foreign firms are likely to become members of the Shanghai Gold Exchange, and analysts also expect Beijing to ease curbs on gold investment products such as exchange-traded funds.

China’s central bank said on Tuesday it will allow banks to hedge bullion positions in overseas markets, urge banks to lend more to domestic gold firms looking to go abroad, and actively develop more yuan-denominated gold derivatives.

‘China’s gold market is going to play an important role in the global gold market,’ said Mr Albert Cheng, Far East managing director of the World Gold Council. ‘It will become more accessible for both international and domestic players.’

Analysts say China wants more banks to trade with overseas counterparts, reduce their reliance on the Shanghai Gold Exchange for hedging, and invite more foreign banking institutions to trade on the exchange, where trading volumes have risen by more than half in the first half of this year.

Source: Straits Times (subscribers only)

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