Gold ETF Debuts in Hong Kong

Yuan-denominated fund opens weak, but expected to thrive

The first yuan-denominated gold ETF has made a lackluster debut on the Hong Kong stock exchange, but if analysts are correct it is just the beginning for the new vehicle.

Reuters reported that the Hang Seng RMB Gold ETF was launched by Hang Seng Bank Ltd. on Tuesday. It is intended to track the performance of the London gold fixing price in U.S. dollars. With few products denominated in yuan available in the Hong Kong market, Hang Seng Bank pointed out that the new ETF offered a means for investors to use yuan to enter the gold market.

Analysts say unfamiliarity with the new ETF is responsible for its less-than-spectacular showing on its debut. Hou Xinqiang, a gold analyst at Jinrui Futures in China, was quoted saying, "It will take time for investors to understand the product before they jump in. Besides, Hong Kong has a lot of gold investment products and the market is already very savvy, so investors will probably take some time to assess its selling point."

China has been working to increase the use of yuan in cross-border trades, and Hong Kong is turning out to offer plenty of opportunities for yuan. With China already known for its hunger for gold, banks and exchanges in Asia are moving to combine the two into attractive vehicles to woo investor yuan.

A gold ETF is in the works from the Shanghai Gold Exchange, and the Hong Kong Mercantile Exchange has already let it be known that yuan-denominated gold and silver futures contracts are on the way. Lion Fund Management of China not only created the first gold fund in China in 2011, but has also amassed $500 million for investment in gold-backed ETFs in other countries.

According to January figures from the Hong Kong Monetary Authority, yuan deposits in Hong Kong rose to 588.5 billion yuan ($93.46 billion) in December of 2011. At that rate, it appears that analysts could be right.

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