China is likely to launch its first exchange traded funds backed by physical gold this year, boosting demand for the metal, according to the World Gold Council.
“We do expect that you will see potentially more than one physical gold ETF in 2013,” said Marcus Grubb, managing director for investment at the WGC, a lobby group backed by the mining industry.
The launch of gold ETFs in China has been hotly anticipated by some gold bulls, who believe it could trigger a new wave of demand for the precious metal.
Investment demand for gold fell last year for the first time since 2007, the WGC reported on Thursday, as Chinese demand stagnated and western investors began to question the sustainability of gold’s decade-long rally. Prices are struggling near six-month lows at $1,643 a troy ounce.
Gold ETFs have been enormously successful elsewhere in the world, contributing to a surge in gold prices since their launch in 2003. SPDR Gold Shares, the largest, now holds 1,327 tonnes of gold – more than all but four central banks.
The launch of gold ETFs would be the next step in the liberalisation of China’s bullion market, which has seen investment demand surge from just 15 tonnes in 2006 to 274 tonnes last year.
Mr Grubb said the introduction of new rules by the China Securities Regulatory Commission last month “effectively paves the way for physical commodity ETFs”.
He said that it was wrong to assume that ETFs would have the same impact on retail investment in China as they have had in the US and Europe.
“There are lots of other investment products available in China,” he said.
Nonetheless, he said ETFs would be attractive to some Chinese buyers. “We think the net impact [on gold demand] will be good,” he said. “Where ETFs are likely to score highly in China is with larger scale investors such as institutional or sovereign wealth.”
Most analysts agree. Tom Kendall, precious metals strategist at Credit Suisse, said: “We think it probable there will be substantial investor interest in the products, at least initially.”
The WGC is the sponsor of SPDR Gold Shares and has been instrumental in promoting gold ETFs. Mr Grubb declined to say whether the group had any commercial involvement in planned gold ETFs in China.
According to reports last year in Chinese media, several fund managers are working on gold ETF products to be listed in Shanghai and Shenzhen.