Chinese banks, regulators take action to calm gold rush

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SHANGHAI, July 29 (Reuters) – Chinese regulators and big banks are rushing to curb trading in precious metals by domestic investors to temper speculation that some fear this year’s misadventures could happen again.The scramble to limit risk comes as gold prices hit record highs this week, spurred on by investors looking for safe haven assets in the markets, rocked by concerns over rising coronavirus cases , high equity valuations and the falling US dollar.
A growing divide between the United States and China has also become a factor attracting mainland investors to gold. The Industrial and Commercial Bank of China (ICBC), the country’s largest lender, said on Wednesday it would ban its clients from opening new trade positions for platinum, palladium and precious metal-linked index products at from Friday.
This directive, according to the lender’s customer service, responded to “violent price volatility” and “the need to control risks”. The Agricultural Bank of China said it had recently suspended new gold-related activities, while the Bank of China said it had halted new account openings for trading platinum and palladium.
The Shanghai Gold Exchange said on Tuesday that holdings of gold and silver were high and that it would take risk-control measures if warranted to protect investors. The Shanghai Futures Exchange, where gold and silver futures are traded, also urged its members to step up their risk management efforts and invest wisely.
“Gold remains a niche investment in China due to limited investment channels,” said Frank Hao, analyst at Hywin Wealth Management in Shanghai. “Investors primarily rely on purchasing paper gold products from commercial banks to counter risk. “
Chinese investors are also actively trading gold ETFs, whose turnover has jumped in recent weeks. Asia’s largest gold exchange-traded fund, Huaan Gold ETF, has seen assets under management climb over 68% to over 11.8 billion yuan ($ 1.69 billion) since late 2019 .
Regulators are aware of the risks after investors were caught off guard in late April when the Bank of China settled a crude oil futures trading product called Yuan You Bao at minus $ 37.63 a barrel, following a ‘a historic drop in oil prices into negative territory.

The bank later agreed to settle with more than half of its customers facing losses, potentially suffering a blow of 6-7 billion yuan. Hao said any further gold gain could spur more speculation, despite regulatory attempts to reduce it.
“If the price of gold exceeds $ 2,000, some more hot money will definitely go into the market, and some investors will divert their equity investments to gold,” he said.

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