China's 1st gold-backed ETF roars into business

(China Daily)
Updated: 2011-01-13 14:06
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BEIJING - China's first gold-backed exchange-traded fund (ETF) has raised more than 3.2 billion yuan ($483 million) after the fund closed its subscription on Monday.

Lion Fund Management Co, which will manage the gold fund, will mainly invest in overseas ETFs that track the international gold price, under the Qualified Domestic Institutional Investor (QDII) program.

"The so-called 'fund of funds' has chosen about 30 overseas gold ETFs for investment, focusing on mature financial markets such as the United States, Europe and Japan, and will also invest in South Africa," Song Qing, head of the international business department of Lion Fund, told China Daily on Wednesday.

He said the fund would prefer to use a "conservative investment method" during the first three months.

Lion Fund started to issue the gold fund on Dec 10, and has become the biggest fund under the QDII program in China in three years, after a month of fund raising.

Institutional investors have contributed more than individual investors in the fund-raising phase, said Song, who refused to reveal the names of institutional investors.

"This fund is backed by physical gold, and there is no leverage or derivative in our investment portfolios, so it is a creative and simple financial tool for normal investors," Song said.

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Chinese investors are increasingly turning to the commodity markets in view of inflationary pressure, especially purchasing gold.

The weakening dollar resulting from the US' easing monetary policy, as well as inflation concerns, will provide opportunities for the fund to expand in the future, Song said.

Lion Fund's gold ETF has created another tool for Chinese gold investors, apart from buying physical gold or trading gold contracts through the Shanghai Gold Exchange, the Shanghai Futures Exchange or commercial banks.

According to the China Securities Regulatory Commission, more than 10 QDII funds are expected to be launched this year.

Chinese investors will invest in more ETFs, which have the advantage of high liquidity, in their investment portfolios, and the key is to create such advanced new-fund products, Song added.

In the first 11 months of 2010, China's total gold output was 308.39 tons, an increase of 9.16 percent year-on-year, said the Ministry of Industry and Information Technology last week. The ministry predicted that China's gold production volume is likely to be more than 340 tons in the last year.

By the end of 2010, China's gold reserve was 33.89 million ounces, according to data from the central bank.