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Chinese banks major players in the country’s gold industry

GOLDEN SUPPLY More than 60% of China’s investment demand – sales of gold bars of 1 kg or smaller – is met through commercial banks’ nationwide network of easily accessible branches

Photo by Bloomberg

GOLD ACCUMULATION PLANS Annual GAP trading volume exceeded 500 t in 2014 and 2015, respectively, as investors used the product to gain short- and medium-term speculative exposure to gold

Photo by Shutterstock

26th August 2016

By: Ilan Solomons

Creamer Media Staff Writer

  

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In the past ten years, China has become the world’s largest gold producer and consumer. It has also developed a vibrant gold banking sector, says the World Gold Council (WGC).

The WGC’s latest ‘Gold Demand Trends’ report, which was released earlier this month, states that China’s commercial banks are a “vital hub” in the country’s gold industry. These banks have developed a range of gold-related businesses, significantly pushing up their gold holdings since 2009.
The council remarks that more than 60% of China’s investment demand – sales of gold bars of 1 kg or less – is met through commercial banks’ nationwide network of easily accessible branches. The report notes that large Chinese banks, such as the Industrial and Commercial Bank of China (ICBC) and China Construction Bank, dominate the retail market.

“They typically sell gold bars bearing the bank’s own branding. “A good example is the ICBC’s Ruyi gold. In addition, banks also sell brands other than their own, which are also known as agent brands. “For example, banks sell Panda gold coins issued by the People’s Bank of China (PBoC).”
The WGC says that, in recent years, smaller banks have entered the market, attracting customers by offering a broader range of gold investment products. It says that these are usually lighter in weight and have higher profit margins. For example, Ping An Bank launched a gold bar for the Year of Monkey in late 2015, which incorporated state-of-the art craftwork. These bars have the pattern of the Monkey stamp issued back in 1992 and the production process was overseen by the designer of that stamp.


Products such as gold accumulation plans (GAPs) have also witnessed “robust activity”, providing an efficient and flexible channel for investors to gain exposure to gold. The first GAP in China was launched by the WGC and ICBC in 2010. Since then, a range of similar products have been created, including automatic monthly gold investment plans.

The report explains that these products provide investors with direct exposure to the gold price backed by physical gold. Although many other banks have launched similar products, the ICBC remains the market leader.

Annual GAP trading volumes exceeded 500 t in 2014 and 2015, as investors used the product to gain short- and medium-term speculative exposure to gold. The council points out that this trading mentality contrasts with that of retail bar and coin investors who typically invest for a longer period.

“While GAPs have high trading volume, their impact on Chinese gold demand is modest. Net inflows into GAPs, including automatic monthly gold investment plans, were 25 t and 30 t in 2014 and 2015 respectively, while 2013 was an exception, with investments in GAPs nearing 100 t, according to data from the PBoC.”


Over recent years, the WGC has said it has observed a rising number of commercial banks participating in the gold leasing market. It points out that gold leasing has allowed companies such as jewellery manufacturers to reduce production costs, hedge against price fluctuations and raise finance.

There are two gold leasing data sources available, the Shanghai Gold Exchange and the PBoC, which provide additional granularity by distinguishing between leasing between banks (interbank leasing) and leasing to corporate clients.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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