Money

Speculation on gold may trigger bubble: experts

(People's Daily Online)
Updated: 2010-06-11 13:09

Since the property regulation policies were launched, more and more real estate speculators became interested in gold, resulting in the question of whether this would lead to another economic bubble when a large amount of floating capital in the real estate market is transferred to the gold market. Experts say that in order to curb the damage to the real economy, some effective measures must be taken to guide floating capital.

The gold price rose to a historic high in May of $1,241 per ounce, and it has been hovering around $1,200 per ounce since June. The share prices of listed gold resource companies also increased.

Cheng Zhang, deputy general manager of China National Gold Group Marketing Company, told reporters that May has historically been a low season for gold sales, but sales conditions in May this year are better than that of previous years. Inflation expectations and a cool property market have made gold the focal point of investment.

Zhou Dewen, head of Wenzhou SME Development Association, said that Wenzhou businesspeople have been discussing withdrawing capital from the property market in recent months. Because gold is easier to transfer into money, it has become a tool for businesspeople to pursue capital appreciation in a short period of time.

"Although the capital transferred from the property market to the gold market is incalculable, it shows a clear trend," said Zhou.

According to the latest announcement by the Shanghai Gold Exchange, the gold trading volume in May was more than 662,000 kilograms, an increase of almost 18 percent from the previous month, or about 141 percent from the previous year. The trade turnover reached 175 billion yuan, an increase of almost 24 percent from the previous month, or about 213 percent from the previous year.

Related readings:  Uncertain times give gold a boost   Gold turns higher as Fitch downgrades Spain's credit rating  Gold snaps three-day drop as haven allure strengthens on Europe  Gold shines as investors hunt for a safe haven  Curbing property speculation

Experts believe there may be a bubble in the gold market after gold prices have remained at high levels for a long period of time. Zhu Zhigang, chief analyst from Guangdong Yuebao Gold Investment Company, reminded investors that gold prices are expected to enter a correction period in July because the gold price level is at a very high level following a decade-long continual rise, and the traditional soft gold trading season is about to begin. Even if idle funds from Wenzhou's businesspeople enter the market, they are unlikely to reverse the trend.

The current domestic gold price would not have been so high without international speculation. As China has become the world's second largest gold-consumption market, international speculators are turning their eyes to the Chinese market.

China should be cautious of international speculators who deliberately drive up the price before tempting investors to enter the market.