By CAROLYN CUI in
January 19, 2008; Page B1
Gold-bug fever is spreading.
The door is opening to a new class of investors who previously wouldn't have had access to gold futures and other tools. Their rush to invest has helped fuel soaring prices -- gold crossed $900 an ounce for a time in the past week, and there are some calls for $1,000 -- while adding volatile new dynamics to the market.
On Jan. 9, thousands of Chinese investors jumped into the bullion market when the country's first gold-futures contract launched. Futures are agreements to buy or sell something at an agreed-upon price in the future, and are traditionally the domain of the pros, not individuals. So far, it's been a bumpy road: The most active June contract soared 6.3% on its debut day, then tumbled 3.7% on Day 2.
A slew of other new investments like these are planned in markets from
Last August, the Osaka Securities Exchange in
Another sign of the shifting power centers in world gold markets: Last year,
The democratization of gold speculation outside traditional Western financial centers has the potential to magnify the already strong appeal of gold as a hedge against global recession, inflation or just general uncertainty.
Investors world-wide shifted billions of dollars into new gold investments last year, fueling a 31% increase in the price of bullion on the Comex division of the New York Mercantile Exchange, the world's most important gold market. The anticipation that greater Chinese participation could be bullish for the market over the long term helped keep Comex gold above the psychological hurdle of $900 earlier in the week.
Uncertainty over future
Last August, a swindler in
In one of the largest recent scandals, a
Until recently, most buying and selling of gold in
Only in 2002 did investors in
Today, however, some of the new products emerging in
The Shanghai Futures Exchange has warned that the product is primarily meant for big trading firms or gold consumers and producers, such as the nation's expanding gold-mining and electronics industries. Yuan Lianbo, who heads the gold-trading desk at Shandong Gold Group, one of the country's biggest gold miners, said his company has already started trading the
Just before trading began, the exchange tried to limit speculation by individuals by more than tripling the size of a single futures contract to one kilogram of gold from 300 grams. It also increased the amount of margin, or collateral, that investors must post, to 9% from 7% of the value of the contract.
Still, while those moves lifted the minimum investment to about $2,700, analysts say gold futures are still affordable to many Chinese investors.
Among those clients signing up to trade the gold contract through brokerage China International Futures Co., "about 90% are individual investors, most of whom were moving assets from stocks after turning bearish on the stock markets," said Lei Hongjun, deputy manager of the firm's Ningbo branch.
Of course, the new ability to trade gold in
Since 2003, Western investors have poured billions of dollars into a related investment, the gold exchange-traded fund. Gold ETFs are pegged to the price of gold, but trade like stocks.
The most active gold ETF, a Big Board-listed fund called streetTracks Gold Shares, now holds more of the precious metal than the European Central Bank or
Similar funds have been launched in
Gold, often in the form of jewelry, holds a special place in many Asian and Middle Eastern investors' portfolios. Increased wealth in these regions means more people can afford to buy on impulse.
Chinese officials have suggested their country's growing demand for commodities is a reason that its three commodity-futures exchanges should play a greater role in global pricing. Sun Zhaoxue, chairman of China Gold Association, was quoted on the Shanghai Futures Exchange's Web site as saying the new gold contract will "improve
Already, a copper-cathode contract traded at the Shanghai Futures Exchange since 1999 rivals the importance of the main copper benchmark on the 130-year-old London Metal Exchange. However, commodity benchmarks are tough to create from scratch, when most global investors have the option of using the heavily traded
--Bai Lin in