The International News

Friday, July 04, 2008

-
BEIJING: Ordinary Chinese are investing more actively in gold as an alternative hedge against decade-high inflation, a senior gold industry executive said on Thursday.

Physical trading at the Shanghai Gold Exchange rose 187 per cent in the first half of the year, which will spur China to import more of the safe-heaven metal this year, Shen Xiangrong, the exchange’s chairman, told a gold conference in Beijing.

Trading volume at the exchange reached 1,960 tonnes in the first six months, exceeding the total of 1,828 tonnes for the whole of last year, Shen said.

“The number of private investors has grown rapidly and reached nearly 260,000,” he said. Turnover by individual investors totalled 25 tonnes in the first half, 16 times more than a year earlier, he said.

Shen said he expected domestic consumption to continue to grow despite high prices, spurring an increase in imports. The Shanghai exchange’s member banks imported nearly 29 tonnes of gold last year.

“Small gold bars are popular among investors and are selling very well in banks and stores as they can keep their value against inflation,” Shen told reporters after his speech.

China’s inflation averaged 8.1 per cent in the first five months of the year, the highest rate since the mid-1990s, making gold an attractive alternative for investors who typically concentrate on stocks and property.

Gold buying suffered in some countries, including India, the largest consumer, when bullion prices hit a record high in March. But demand in China held firm, with a 15 per cent increase in purchases of gold for jewellery and investment in the first quarter of 2008, according to the World Gold Council.

“Bar demand (in China) will continue to grow. Trends are very positive,” said Philip Klapwijk, executive chairman of GFMS Ltd, a London precious metals consultancy. But jewellery demand would fall by five to 10 per cent this year due to high prices, he said.

Chinese buying of physical gold for investment purposes rose to 15.1 tonnes in the first quarter of the year, compared with 25.6 tonnes in all of 2007, the Council’s figures showed.

But demand was still only half of India’s. China opened up its bullion market this decade. Gold hoarding was forbidden when the Communists took power in 1949. Shen said the gold exchange, set up in 2002, will launch more products and admit more foreign banks as members, there are now four, in order to boost trading.

The Shanghai Futures Exchange, which began trading in January, is also trying to boost business. It is seeking to persuade regulators to lower minimum margins and allow more players into the market, the exchange’s chairman, Wang Linhua, told the conference.