China Approves Its First Gold Bullion ETFs

June 10, 2013

China will soon get its first physical gold ETFs, but the timing seems rather bad.

Chinese securities regulators approved for launch two gold bullion gold ETFs that will trade on the Shanghai stock exchange, bringing to investors in China an ETF concept that has been a smashing success in the U.S. but that has run into head winds in recent months as the 12-year gold rally falters.

The approvals allow Huaan Asset Management Co. and Guotai Asset Management Co. to proceed with separate product launches, according to a report published by Bloomberg News that cited sources at both asset management firms. It wasn’t clear from the report when the products might go live.

The world’s biggest bullion ETF, SPDR Gold Shares (NYSEArca: GLD), still stands as the most impressive exchange-traded fund launch in the 20-year history of exchange-traded funds. It gathered its first $1 billion in just three days in November 2004.

However, this year, the fund has bled more than $16 billion in assets and its price has slid more than 17 percent. That means GLD’s assets have fallen about 38 percent this year, to just shy of $45 billion, according to data compiled by IndexUniverse.

Demand for actual physical gold has been booming in Asia as the price has been falling. But it’s not clear that will translate to demand for the new gold ETFs, which will be based on spot gold prices on the Shanghai Gold Exchange.

More broadly, the ETF industry in Asia and in China is considerably smaller than in the U.S., in part because some Chinese investors who are interested in ETFs might actually settle on securities listed elsewhere, including in the U.S.

Total ETF assets in the Asia-Pacific region are less than $80 billion, according to ETFGI, the London-based ETF consultancy.

By comparison, U.S. ETF assets currently are at $1.5 trillion.

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