CASH might be king, but gold could again rule.
Amid a struggling stock market, rising prices and uncertain prospects in the property sector, many Chinese people think that gold is the safest and most reliable asset.
A range of developments over the past year seems to show the increasing allure of gold: At the 2007 China Gold and Precious Metal Forum held last December in Shanghai, the China Gold Association estimated that more than a million Chinese then had gold investments.
In Beijing Caishikou Department Store, the capital’s largest gold jewellery, accessories and decorations retail store, two tonnes of gold bars commemorating the Lunar Year of Rat, retailing at 238 yuan a gram, sold out in under two hours in November.
The store says the sale included 4,000 orders and on-site purchases of over 200 kg of the gleaming metal, all of it together valued at nearly 60 million yuan.
The Beijing Organizing Committee for the Olympic Games and the China Banknote Painting and Minting Corp jointly issued a series of gold and silver bars to commemorate the Olympics.
The fifth and last set of Olympic gold bars hit the market on Jan 2 to complete the entire collection that spells out “2008” in the image of a dragon. With their provenance the price of Olympic gold bars has risen dramatically since they were first issued two years ago. The first set is now worth more than triple its initial price.
China’s first gold investment instrument, CGS Standard Gold Bars, sold 2.7 times more bullion last year than in 2006. First offered to individual investors in 2003, the 99.99% pure gold bars come in weights ranging from two to five to 10 ounces.
Minted by CGS Ltd, a joint venture between mainland and Hong Kong bullion traders, pricing of bars is based on the daily rate of the London Precious Metals Exchange with quotations on the Shanghai Gold Exchange serving as a reference.
Gold investment on paper is also enjoying enormous popularity.
Three of China’s commercial banks – the Bank of China, Industrial and Commercial Bank of China and China Construction Bank – offer the products, which had two-digit month-on-month price increases last year.
Gold futures trading was officially launched in China on Jan 9 at the Shanghai Gold Exchange, but now open to only institutional investors.
“Gold futures will open to individual investors sooner or later and is expected to be a white-hot investment tool for aggressive investors,” says Chen Jinhua, deputy general manager of Jingyi Gold Investment Co.
Beijing citizen Tang Jianming, a pioneer in buying stocks and funds in China, earned big returns early last year due to the extraordinary bull market. He says he is lucky to have put the bulk of his earnings in CSG bars and gold treasuries from the Bank of China before May 30, the day the Shanghai and Shenzhen exchanges had a dramatic slump.
He estimates that paper value of his gold has increased by 20% since due to rising international gold prices, depreciation of the US dollar and domestic inflation.
According to Hou Huimin, vice-chairman of China Gold Association, investment enthusiasm for gold is promising in China because the nation currently lacks diverse financial instruments.
As gold prices often react inversely to other assets, buying gold is a way to preserve capital value when the stock market is bearish or the US dollar is weakening.
“The real value of gold is not that it provides a quick, speculative fix, but its capacity to provide a sure and steady means of protecting wealth and to enhance risk-adjusted returns,” Hou says.
“So investors should include gold in their portfolios to diversify their investments and serve as a balance to shares.”