The ETF world is set for another historic jump as the Chinese are eyeing gold funds on their local exchanges. As its gold market continues to grow, China is set to surpass India’s gold consumption this year, opening the opportunity for gold ETFs that have dominated U.S. exchanges. The Shanghai Gold Exchange (SGE) also has plans to launch an interbank market in the next few weeks as demand for this precious metal continues to surge [for more gold news and analysis subscribe to our free newsletter].
“As the domestic market matures and opens up, the exchange will launch over-the-counter trading, gold ETFs, Friday night trading and improve the leasing market,” said SGE Chairman and President Wang Zhe. He went on to state that he had no doubts that gold ETF products would make their way onto Chinese exchanges as they have entered the study phase on regulations and operations of said products.
In China, For Now
For the time being, the gold ETFs would be offered only on local exchanges, but Zhe stated that there is a very strong potential for these products to open up to international trading. Currently, investors’ only option that comes close to these proposed funds is the Physical Asian Gold Shares (AGOL), which stores its bullion in Singapore. But with more and more investors looking to store their gold overseas, China appears to be the most popular option out there.
The main reason behind overseas storage is to keep your holdings out of the U.S. government’s hands and potentially protect oneself against a gold confiscation. It is generally agreed that if the United States ever were to confiscate bullion, China would be the last country to comply with their wishes, and would keep the information on bullion holdings to themselves. At this year’s Inside Commodities Conference, we heard Peter Hug, Director of Global Trading at Kitco, state that a number of his high wealth clients were moving their bullion over to Chinese vaults.
There is clearly a demand for Chinese gold and the proposed gold funds have the potential to be among the most popular in the commodity space. The only question that remains is how long it will take before the funds make their local debut and graduate to an international stage.
Disclosure: No positions at time of writing.