Chinese now primed for Gold

Monday, December 10, 2007 6:19:52 AM
Author: John Reade, Robin Bhar
UBS Metals Daily

China's wealthiest investors set for gold spree

China's wealthiest investors are on the brink of ploughing as much as $68 billion into gold markets as they take profits from roaring share prices and steer clear of property, a top fund manager and bullion bull says. Wang Weilie, a pale, bespectacled 40-something who manages over 1 billion yuan ($135 million) on the Shanghai Gold Exchange on behalf of himself and clients, says the so-called "Zhejiang clique" are ready to pounce after Beijing opens up spot market bullion trading and a futures contract launches early next year. After amassing an estimated 3 trillion yuan ($400 billion) from investing in red-hot real estate and stock markets which have risen five-fold in the past two years, the wealthy group from eastern China is looking for the next sure bet. Wang says that's gold, and expects the amount of Chinese capital invested in the bullion market to soar 100-fold to some 500 billion yuan ($67.5 billion) in the next two years -- a sum that could catapult China ahead of India as the world's top buyer. "We all agreed that upside room on stocks was limited, as was upside on property prices. But the gold price has only increased minimally, even after 20 years of China's reform and market opening," Wang told Reuters during a lunch with three business partners in Lujiazui, Shanghai's financial hub. Coupled with inflation and global economic uncertainty, the redirection of Chinese capital towards domestic gold contracts will help spot prices more than double, says Wang, who says he once cornered two-thirds of the Chinese gold forward contract. "Spot gold prices will hit $2,000 in coming years," he said. Spot gold touched a 28-year high of $845.40 per ounce in early November, nearly doubling over three years amid a flood of investment in the commodities complex -- much of it driven by China's growing demand for raw materials to fuel its economy. Wang expects more than 15 percent of the capital currently invested in China's stock market to move to gold trading. China's total market capitalization peaked at about 35 trillion yuan in October, exceeding the country's gross domestic product. The main stock index tumbled nearly 20 percent last month while Beijing has continued tightening controls over the property sector to limit price gains (Reuters).