Monday, June 10, 2013

China Approves Gold-Backed ETPs as Domestic Buyers Chase Bullion

10 June 2013
, (bloomberg)

China approved two domestic exchange-traded products backed by gold as global holdings of the precious metal in ETPs dropped to a two-year low.

Huaan Asset Management Co. and Guotai Asset Management Co. received the China Securities Regulatory Commission’s permission to start the funds, which will be denominated in yuan, said Liu Jianqiang and Li Yebin, spokesmen for Huaan and Guotai.

They will be traded like stocks on the Shanghai Stock Exchange (SHCOMP), tracking movements of spot gold on the Shanghai Gold Exchange, Liu and Li said separately by telephone from Shanghai.

Gold slid into a bear market in April amid concern the U.S. Federal Reserve may rein in stimulus that helped bullion cap a 12-year bull run in 2012 and as investors reduced holdings in exchange-traded products backed by the metal.

Buyers in mainland China viewed the rout as buying opportunity and rushed to purchase jewelry, bars and coins in late April and early May.

“Gold ETFs should help boost gold demand as they will make Chinese investments in the bullion much easier,” Zhang Bingnan, secretary-general of the China Gold Association, said by phone from Beijing today.

“The dumping recently of holdings in gold exchange-traded products by overseas investors may not prove to be a wise move.”

Huaan and Guotai haven’t started raising money for the funds yet and didn’t give an indication of their potential size, according to the spokesman.

Two calls to the China Securities Regulatory Commission went answered today, which is a holiday in China.

Gold futures are traded on Shanghai Futures Exchange and spot and deferred delivery contracts traded on the Shanghai Gold Exchange.

Custodian Banks

China Construction Bank Corp. (939) will be the custodian bank for the Huaan gold ETF, Liu said. Industrial & Commercial Bank of China Ltd. (601398) will play the same role for the Guotai, according to Li.

Holdings in gold-backed exchange-traded products shrank 19 percent this year as investors cut 496 tons of the metal, according to data compiled by Bloomberg.

“We think the timing is pretty good after the recent decline because gold prices have got close to the cost of production, limiting downside risks,” Liu at Huaan said.

Gold slid as much as 31 percent from a record in September 2011 through April 16, when it slumped to $1,321.95 an ounce.

Bullion traded at $1,385.99 at 12:30 p.m. in Shanghai. Gold of 99.99 percent purity on the Shanghai Gold Exchange traded at 281.05 yuan a gram ($1,425 an ounce) on June 7.

The premium gold buyers in China pay to take immediate delivery of bullion jumped four-fold as physical demand surged.

In the 12 months through April 12, before the rout, spot gold in China traded at an average premium of $7.22 an ounce to the global price, according to the Shanghai Gold Exchange.

The premium averaged $33 an ounce from mid-April through May.


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