China punters sway gold market

Wednesday, August 31, 2011

Mainland punters have emerged as a formidable force in the international gold market and are one of the main reasons for the ongoing volatility in gold prices, say Hong Kong industry sources.The spot price of gold has lurched between US$1,640 per ounce and US$1,900 in the past month.
From 7.30pm Hong Kong time yesterday the price went from US$1,785 to US$1,840 in a matter of hours in New York trade.
A source in the market saw 7,000 contracts being placed via electronic trading at the start of this period. Heavy volume of bullish bets placed on the gold price by mainland punters also pushed it higher, the source said.
Emperor Financial Services assistant vice president Sam Lee Chun-wai estimates the global trading volume of gold amounts to US$1 billion daily.
Mainland punters by themselves cannot move the market, he said. But Lee noted that an appreciation of the yuan amid continued economic boom in China has boosted the firepower of mainland players.
"Buying commodities with US dollars has proved to be an attractive investment for many mainlanders in the last few years," he said.
According to a report in Yangcheng Evening News last Wednesday, just one city in Guangdong province - Guangzhou - has 2,000 underground investment companies dealing in gold and foreign currencies.
Investors can leverage up to 100 times their principal with such black- market brokers, the daily said. The black market for gold in China sees up to 100 billion yuan (HK$122 billion) worth of trade every year, the report said.
Legal exchanges around the world have acted swiftly to curb volatility in the price of the precious metal.
The US-based CME Group raised trading margins of gold by the most in more than two and a half years last week, leading to a 4 percent drop in the spot price.
CME increased margin requirements on its gold futures contract by 27 percent, the second hike in a month, following similar moves by the Shanghai Gold Exchange and Hong Kong Mercantile Exchange earlier this month.
Mainland punters are taking advantage of the situation, sources say, by going both short and long on the metal.
End-of-month settlement for futures contract has also helped raise volatility, said traders, who also noted that the US$1 billion daily trading volume of the gold market is relatively thin compared with the oil market, which sees a much higher volume.
"Contrary to what many people think, it is not unthinkable that on certain days, mainland punters may emerge as a dominant factor on the international gold market," a source said.
Mainlanders have certainly emerged as the largest players in the Hong Kong gold market in recent years, traders confirm.
Local analysts estimate they now account for up to 70 percent of the daily trading volume on the Hong Kong open market.
The SAR also allows out-of-market gold trading and this is very attractive to mainlanders, traders said. Last night, spot gold was up 2 percent, reaching as high as US$1,822.50 an ounce in New York afternoon trade. 


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