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Two Million Chinese Open Gold Bank Accounts

Release Date: 
Friday, January 20, 2012

Gold and silver rose on Friday, with gold trading up $9.60 per ounce to $1,667.30 as of 2:00 PM Pacific Time on the New York Spot Market and silver trading up $1.54 per ounce to $32.28. Data released Thursday showed weekly U.S. jobless claims fell more than expected. Strong results from debt auctions in France and Spain boosted risk sentiment and a rise in equities.

Concerns remain that Greece may ultimately default on its debt obligations. "Negotiations over the involvement of private creditors in the Greek haircut... are proving to be extremely difficult," said Commerzbank in a note. "There remains a high risk of an outright insolvency of Greece in the coming months which could bring the sovereign-debt crisis back to boiling point. We therefore believe that demand for gold will remain high."

More than 2 million Chinese investors have opened accounts in the past two years to accumulate gold at the Industrial and Commercial Bank of China (ICBC). The ICBC launched the accounts in April 2010, allowing small investors  to access the gold market with purchases of as little as one gram a month. Agricultural Bank of China launched a similar program in September, signing up more than 70,000 investors.

"The fact that the government has started to clean up the gold market is favorable to our business, as investors who have been trading on illegal platforms will need to look for new investment platforms, said Shi Xudong, deputy head of the Administration Office of the Precious Metals Department at ICBC, referring to the recent regulatory crackdown on China’s illegal exchanges. "The Chinese really love gold."

Senior Commodity Strategist Nick Trevethan at ANZ explained the popularity of the accounts. "Chinese investors are looking for ways to protect their savings from negative real interest rates," he said.

Albert Cheng, Managing Director of the World Gold Council, Far East, said "in 2012, both investment and jewelry demand will retain growth." For 2012, he estimates that investment demand could grow 25-30 percent and jewelry demand 6-10 percent. According to his calculations, total gold demand in China rose 18% year-over-year by the end of 2011.

(Sources: "Gold futures ease after upbeat U.S. data," MarketWatch, January 20, 2012; "PRECIOUS-Gold eases below $1,650/oz as euro rally fades," Reuters, January 20, 2012; "China Banks Lure Small Investors With 'Gold Accounts'," CNBC, January 19, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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