India Gold - Customer Zone - Reuters

COMMODITIES GOLD GOLD: REBOUNDS WILL RISK SHIVER BATTERED AVERSION ON JAPAN AFTER BY BANISH DEBT SHARPEST U.S. CREDIT DOWNGRADE CORRECTION LOSS DOWNGRADE SINCE DESPITE FEARS? MAY CORRECTION FEARS AUGUST 2011
BUYING ON DIPS
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.
RISKY BETS
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
towards a full liberalisation
of the sector.
"As physical demand increases,
the government
will need to increase the
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