Chinese banks move to rein in retail gold trading on volatility

[SHANGHAI] Some major Chinese banks are shutting down services that aid retail trading in precious metals, after a multiyear rally in gold and silver went into reverse in recent months.

Industrial and Commercial Bank of China, the nation’s biggest by assets, said that it will stop offering intermediary services for individuals to trade precious metals on the Shanghai Gold Exchange after settlement on Jul 24.

Existing clients are advised to sell or close their positions before then, it said in a statement on Wednesday (Jun 24).

China Guangfa Bank asked clients to close their precious metals positions before 3.30 pm Hong Kong time on Thursday, or face forced liquidation by the end of the month, based on notice on Monday.

Investors can still put money into gold accumulation products or exchange-traded funds that track precious metals, it said.

Spot gold fell below US$4,000 an ounce this week, extending its retreat from a record high of nearly US$5,600 in January.

The precious metal had more than doubled over the previous two years, but the rally unravelled after the outbreak of the US-Iran war stoked inflation fears, reinforcing expectations that interest rates would remain elevated.

Both banks cited risk management for the closures, which covered trading in both spot and deferred delivery contracts. The shutdown in services follows similar announcements by Postal Savings Bank of China and Ping An Bank this year.

Banks have moved to gradually tighten thresholds over the past year for retail investment in precious metals, and warned against risks in the volatile trade that caused losses for even sophisticated investors like quantitative hedge funds.

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Starting from 2020, Chinese banks stopped opening new accounts for individual investors, in a move to prioritise institutional players in the physical gold market.

Retail investors are still able to open trading accounts at the Shanghai Futures Exchange via brokerages, or invest in the gold accumulation plans offered by commercial banks, where they can buy bullion incrementally over the long term. BLOOMBERG