Bank eyes consumer gold rush
Beijingers yesterday became able to buy and sell gold bars at a bank, opening a convenient and flexible new investment tool to help citizens manage their assets.
The China Merchants Bank (CMB) said it had launched the repurchasable gold bars business in the capital city and planned to next extend it to Shenzhen. A step by step national roll-out is expected to follow.
CMB is a sales agent for the repurchasable gold bars processed by CGS Ltd, a joint venture between the mainland and Hong Kong. The first batch of gold bars are divided into three specifications: two ounce, five ounce and 10 ounce. All reach 99.99 per cent purity.
The buying and selling prices of the gold bars will fluctuate based on the quotation of the London Precious Metal Exchange and with reference to the Shanghai Gold Exchange, China's sole gold market.
Yesterday's buying and selling prices for the gold bars were 3,272.91 yuan (US$394.33) and 3,279.13 yuan (US$395.08) per ounce respectively, or 105.23 yuan (US$12.68) and 105.43 yuan (US$12.7) per gram, according to the CGS Standard Gold Bar Quotation released by the company.
CGS declined to disclose the exact amount of gold they have provided to CMB, but have guaranteed enough to supply the market.
Huang He, an official of the CMB Beijing Branch, said a processing fee would be added to the transactions of 109 yuan (US$13.13) per ounce for buying and 62 yuan (US$7.47) per ounce for selling.
Before the business was officially launched in Beijing, a trial was carried out in Chengdu, capital of Sichuan Province, last November.
On November 2, the first business day of the repurchasable gold trial, five outlets of CMB Chengdu sold a total of 4,167 grams of gold. The transaction volume reached 460,000 yuan (US$55,422), with the selling price set at 107.05 yuan (US$13) per gram on the day.
A CMB expert estimated the yield of a repurchasable gold bar transaction might reach 5 per cent on average.
"We are cautious about expanding the business and will concentrate on nurturing it. That is why we do not expect quick and high returns in the primary stage," said Gao Li'ang, general manager of CGS Ltd.
Meanwhile, the company and CMB will jointly provide more investor services and derivative financial products, including an on-line business and gold mortgages.
Small-sized gold bars have been available to Chinese people since November 2002, when department stores in Beijing, including China Art and Crafts Plaza, Guiyou Plaza's Jianguomen and Fangzhuang outlets and the Caishikou Department Store, were allowed to sell gold bars to individual consumers.
"The gold transactions in the bank are more standard and convenient than in the department stores, given the bank's reliable financial support and rich financial management experience," said Xu Shouxin, deputy secretary-general of the China Gold Association.
The majority of the gold bars sold in department stores are for decoration and commemoration, and attract higher processing charges than the standard gold bars.
Prior to CMB, the Bank of China Shanghai Branch kicked off "Gold Treasure" - a paper gold business - last November, which has witnessed transaction volume growth of 40 per cent month-on-month.
So far, four State commercial banks have submitted applications to open gold transaction businesses to the China Banking Regulatory Commission.
The Shanghai Gold Exchange will issue 50-gram gold bars for trial next Monday. Currently, the smallest bars traded are 1 kilogram.
"The new product is to meet the requirements of individual investors and further accelerate transactions in the market," said an official of the Shanghai Gold Exchange.
Liu Shan'en, an expert at the Beijing Gold Economics Research Centre, said the businesses were all eyeing the huge potential in the gold investment market.
"Currently, the nation's deposits stand at 10.3 trillion yuan (US$1.24 trillion). After liberalization of the market, the capital flowing into the gold investment market is estimated to be between 60 billion yuan (US$7.23 billion) and 200 billion yuan (US$24.10 billion), according to our research," said Liu.
Statistics from the China Gold Association showed that China is the third-largest gold consumer and the fourth-largest producer internationally. China consumed 230 tons of gold in 2003, and produced 200 tons of gold.