SHANGHAI (Reuters) – Record gold prices, rather than denting China's enthusiasm for bullion, have emboldened investors to plough more money into gold bars and riskier bullion-based derivatives.
August is traditionally a slow month for Chinese jewelers, but many shops in Shanghai visited by Reuters reported surprisingly solid gold sales over the last few weeks, with shoppers unfazed by gold's stellar price gains over the past few months.
"The surge in prices has sparked another gold-buying craze. The 50 gram and 100 gram gold bars were selling like hot cakes," said Ms. Liu, a store manager at Shanghai's major jeweler Lao Feng Xiang Co Ltd (600612.SS), who said gold sales this month were up at least 30 percent from a year ago.
The attitude of Chinese consumers -- expected to soon overtake Indians as the world's top buyers of gold -- will be an important influence on longer-term trends.
Demand from the world's most populous country, which is adding hundreds of thousands of people to the ranks of affluent and middle-income consumers every year, implies that the long-term price floor for gold is set for a steady increase.
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That demand may also help smooth out temporary drops in prices.
Spot gold has come off its record highs of over $1,900 an ounce hit last week, falling back to around $1,820 an ounce, but such dips appear only to embolden consumers.
"Many Chinese investors and consumers see price corrections as buying opportunities. The view that gold is an enduring store of value is firmly rooted in Chinese cultural traditions," said Hou Xingqiang, a gold analyst at Jinrui Futures.
"Gold's rally over the past two years and the debt worries in the West have only strengthened Chinese investors' belief that they need to own the metal as an investment asset."
There is no shortage of bulls on Wall Street forecasting even higher gold prices, with J.P Morgan predicting at least $2,500 an ounce by the end of the year.
Amid the gold frenzy, China's banks and brokerages have been quick to offer paper gold investments to cash in on the trend.
Trade sources at the Bank of China and Industrial and Commercial Bank of China say demand for their gold-linked savings products has soared, while a growing army of retail investors are also eager to dive into the paper gold market.
Expectations that gold will extend its bull run have also encouraged investors into the country's nascent gold derivatives markets, such as the forward and futures contracts on the Shanghai Gold Exchange (SGE) and Shanghai Futures Exchange.
Volumes for SGE's most popular gold forward contract hit a record high of 350,670 grams in August -- double the volume in July.
"More investors are moving into paper gold because of the lower capital costs. The prospect of making big and quick bucks by betting on gold's ascent is beginning to look like a fairly easy way to make money," said He Wei, a gold analyst at Nanhua Futures.
That could create other risks down the road, however, which authorities are trying to fend off.
Investors buying gold swaps and forwards generally do so on margin, putting up only a part of the money themselves -- potentially setting themselves up for much bigger losses should the market turn sour.
Alarmed by the surge and worried that the giddying climb in prices was encouraging excessive risk-taking, the SGE raised margin requirements twice this month to 12 percent.
The explosive interest in gold investments has also led investors to move to less mainstream derivative products offered by over-the-counter exchanges that have sprung up in recent years, bringing about new risks given the lower margin requirements.
The Tianjin Precious Metals Exchange, established in 2010, has seen a leap in demand for its swap contracts.
"The capital outlay for swap contracts is even lower and it's becoming a popular investment instrument," said Han Qingsheng, a trading manager at Gold Day, a brokerage for the Tianjin Precious Metals Exchange.
While the government is taking a somewhat cautious approach, people's thirst for new investment products will no doubt accelerate China's opening up of the gold sector -- a move long awaited by foreign banks.
In a sign that more changes are afoot, the China Banking Regulatory Commission has already granted membership to two foreign banks to trade gold futures on the Shanghai Futures Exchange.
Industry watchers said changes on the horizon include night trading for the SHFE's gold contracts and expanding the list of domestic banks allowed to import gold -- a big step toward a full liberalization of the sector.
"As physical demand increases, the government will need to increase the supply avenues and some foreign banks have an advantage because of links to overseas mints or foreign trades," said a senior executive at foreign bank.
"This would be the next step we're all waiting for."
(Editing by Jason Subler and Michael Urquhart)
SINGAPORE – Oil prices hovered above $85 a barrel Monday in Asia after a hurricane left minimal damage among refineries along the U.S East Coast.
Benchmark oil for October delivery was up 11 cents to $85.48 at midday Singapore time in electronic trading on the New York Mercantile Exchange. Crude rose 7 cents to settle at $85.37 on Friday.
In London, Brent crude for October delivery was down 45 cents at $110.91 on the ICE Futures exchange.
Tropical Storm Irene packed hurricane-force winds when it slammed into the East Coast near North Carolina this weekend and headed north into New York. The storm was blamed for at least 21 deaths, widespread severe flooding and more than 4 million homes and business losing power.
Oil refineries in the region have so far reported no major damage.
The National Hurricane Center said Monday that Irene was maintaining 50 mph (80 kph) maximum sustained winds as it neared the U.S.-Canada border.
"The greatest impact from the storm is likely to be the impact on regional economic activity caused by flooding and power outages," J.P. Morgan said in a report. "These could take some time to restore to normal, and is therefore likely to reduce petroleum demand in the interim."
After jumping from $84 in February to near $115 in May then sliding back down to $76 earlier this month, crude has traded close to $85 for the past week as traders look for evidence of the severity of the slowdown in economic growth in the U.S. and Europe.
Federal Reserve Chairman Ben Bernanke didn't propose any new steps to stimulate the economy during a speech in Wyoming on Friday.
In other Nymex trading for October contracts, heating oil fell 1.9 cent to $3.00 per gallon and gasoline futures dropped 3.6 cents to $2.75 per gallon. Natural gas for September delivery slid 2.6 cents to $3.91 per 1,000 cubic feet.
SHANGHAI – Sinopec, Asia's largest refiner by capacity, said first-half profit rose 12 percent as higher oil, gas and chemicals revenues helped offset a loss in its refining business.
The company, also known as China Petroleum & Chemical Corp., said Sunday that its net profit in January-June was 41.2 billion yuan ($6.4 billion), or 0.475 yuan (7 U.S. cents) per share, based on international financial reporting standards.
The results were better than analysts had forecast. Profit a year earlier was 36.8 billion yuan.
The company attributed the improvement to higher oil and chemicals prices and better integration of its upstream and downstream businesses. But it said the outlook for coming months was uncertain.
"We are and we will be facing a complicated macro-environment," said Sinopec's chairman Fu Chengyu, noting the impact of the economic problems in the United States and Europe on the global recovery.
The 44 percent increase in global crude oil prices in the first half of the year was both a help and a hindrance. While Sinopec's revenue surged 31.7 percent in January-June to 1.2 trillion yuan ($187.5 billion), buoyed by strong sales of oil, gas and chemicals, higher costs for imported crude oil pulled its refining business into loss.
China's controls on fuel prices have left refiners constantly battling losses as global prices have fluctuated.
The company's refining unit posted a 12.2 billion yuan ($1.9 billion) loss in the first half, compared with profit of 5.7 billion yuan in the same period a year earlier.
With crude oil prices now in retreat, Sinopec's refineries could see improved results later in the year, Citi analyst Graham Cunningham said in a report Monday.
"We believe there is a strong possibility the government could move ahead with a more liberal pricing mechanism for gasoline and diesel if oil prices moderate and domestic inflation begins to come down," he said.
Sinopec said its crude oil output fell 5.4 percent to 156.3 million barrels, as maintenance of machinery in its oil fields in Angola forced a sharp cutback in production. Its natural gas output rose 27 percent to 253.88 billion cubic feet (7.19 billion cubic meters).