Shanghai Planning Gold Exchange-Traded Funds as Demand Jumps

The Shanghai Gold Exchange is planning to start exchange-traded funds, tapping rising demand in China, the biggest investment market for the precious metal.

“There are some complexities, as the central bank is in charge of gold management, while we still need to go through the procedures for launching new exchange products,” Wang Zhe, chairman of the bourse, said at a Shanghai forum. There is no timetable and the exchange is working with regulators on the plan, Wang said. China is the world’s largest gold producer and second-largest in overall consumption.

Gold investment demand by China more than doubled in the first quarter, overtaking India to become the largest market for gold coins and bars, the World Gold Council said May 19. Bullion jumped to a record $1,577.57 an ounce this month as investors sought a store of value amid rising inflation and concerns about the strength of the global recovery.

China doesn’t have gold ETFs and investors usually choose to buy physical gold, or invest through contracts traded on the Shanghai Gold Exchange, the Shanghai Futures Exchange or through banks. Lion Fund Management Co. in January said it raised more than 3.2 billion yuan ($483 million) for China’s first gold fund to be invested in overseas exchange-traded products.

Demand Jumps

Investment demand in China jumped 123 percent to 90.9 metric tons in the first three months. Total consumption including jewelry gained 47 percent from a year ago to 233.8 tons, the council said. That still lags behind India’s 291.8 tons. China demand may double before 2020, the council said.

Global investment increased 26 percent to 310.5 tons in the quarter. While bar and coin purchases climbed 52 percent to 366.4 tons, holdings in exchange-traded products backed by the metal declined. ETP assets dropped 69.9 tons from December through March, according to data compiled by Bloomberg, after reaching a record 2,114.6 tons.

Billionaire investor George Soros sold 99 percent of his bullion-backed SPDR Gold Trust assets and all 5 million shares in the iShares Gold Trust in the first quarter, a government filing showed this week. John Paulson, the biggest investor in the SPDR Gold Trust, maintained his positions.

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