Investor speculation on gold will add risks |
| Date Added: November 20, 2009 02:57:52 AM |
| Author: |
| Category: Jeans |
| As gold prices surge to a new record, China`s retail investors are trading more of the yellow metal, often using borrowed money. This is further evidence that recent high prices might not be sustained. Like investors around the world, stainless steel pin Chinese individuals are buying gold because they are worried about inflation. After all, Beijing has already pumped an unprecedented amount of money into the system, sending asset prices higher. But Chinese retail investors are also known for their herd behavior. Despite the recent sharp rise in gold prices, steel nuts many have decided to jump in. This is lucrative business for Chinese banks. During the first six months, mid-sized Industrial Bank Co Ltd, which offers gold trading services with Shanghai Gold Exchange, traded 20.9 billion yuan ($3 billion) worth of gold for its clients - almost three times as much as it did last year. Other than earning a commission for buying and selling for its clients, the bank is also making a gamble itself. It traded 15.3 billion yuan worth of gold on its own account, up 15 percent from last year. Risks can be big for Chinese investors. Like most retail investors, they are often at a disadvantage to international institutions because they lack up-to-date information. Moreover, big price changes in global markets often happen when China is asleep. A greater source of concern, however, is that investors are placing leveraged bets. Leverage is not allowed in China`s stock market, and that`s why people eager to maximize their returns have flocked to gold trading. At Industrial Bank, customers are allowed to borrow as much as 90 percent of the value of the gold contracts they are buying. Investors are also allowed to sell gold short, though most of them are choosing to place long bets. It is not uncommon for investors to use three to five times of leverage. |
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