With the launch of China gold futures on Wednesday, here is some background on the development of the country's gold market in recent years, including the investment options available for domestic investors prior to the introduction of the gold futures.
In 2002, China launched the Shanghai Gold Exchange (SGE), which traded rare metals, to gradually free up domestic gold trade.
At the time, however, only 108 approved institutional members of the SGE were legal gold trade agencies allowed to take orders and handle the gold transaction. The service was not available to individual investors until July 2005.
Another investment option was launched by the Bank of China (BOC) in November 2003. Called a "gold trade account service", it allowed customers to use money in their accounts to virtually buy and sell gold at global prices.
The bank could update the account in line with gold price fluctuations, but no real gold transactions occurred in the process. The trade also allowed no leverages.
The BOC service took the remote gold investment closer to common retail investors, as the required minimum order volume in the service was just 10 grams.
In comparison, charges over cash commodity trade of gold was about half the transaction fee for the "gold trade account service", but the required minimum order volume for cash commodity trade was 10 times, or even higher, the BOC service.
The SGE started to offer contracts of deferred cash trade for gold, called Au (T+D), in August 2004. Quite similar to a futures contract, it required a cash deposit of only 10 percent of the contract value. Investors could keep the contract for an indefinite time, or they could close it within one trading day.
The commodity exchange introduced an improved version of Au (T+D) trade last November, shortly before the introduction of gold futures. This further lowered the trade cost of the deferred contract by largely reducing the detain fee charged at investors who held the contract for more than 250 trading days.
Source:Xinhua
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