Unleashing The Dragon: China Enters The Global Gold ETF Market (GLD, SLV)

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December 10, 2010 12:44pm NYSE:GLD NYSE:SLV

Today, Lion Fund Management Co becomes the first company in China to create a fund allowed to invest in foreign exchange- traded funds (ETFs) backed by gold. Lion Fund Management Co was

 founded in 2003 and is based in Shenzhen, China.  The firm manages mutual funds for its clients and also invests in public equity and fixed income markets.

On November 29, Lion Fund won regulatory approval to launch a gold fund under the country’s Qualified Domestic Institutional Investor scheme (QDII), inclusion in which enables them to invest client’s money outside of China within set quotas. After less than a month, the new fund is set to launch today. Lion Fund has announced that it will invest no less than 80% of its underlying assets in gold ETFs. The fund intends to raise up to 3.3 billion yuan (USD 496 million) which will then be converted into hard currencies to buy gold in the global market.  The company is currently in the process of assessing a dozen gold-backed (ETFs) on the global market as potential targets, including the SPDR Gold ETF (NYSE:GLD).  [Visit Our SPDR Gold ETF (NYSE:GLD) Category]

“Investors want products that can defy inflation and keep their value during times of uncertainty,” said Song Qing, director of the fund’s international business. “This product can meet such demands.”

Although The Lion Fund is currently the only firm with approval, it is expected that rival E. Fund Management Co will soon have approval to invest in foreign ETFs as well. 

It is expected that many Chinese investors will take advantage of this opportunity as the purchasing of physical gold is already an extremely popular investment strategy for the Chinese. Until now, Chinese investors were limited to buying physical gold jewelry, bars or coins, or invest through gold contracts traded on the Shanghai Gold Exchange. The launch of a Chinese gold fund will allow a more flexible choice for investors.  [Read: Which Gold ETF Is Best?]

Gold’s long history of stability makes it an extremely profitable investment. As the world continues to battle an unsound economy, the demand for gold is on the rise. For many novice ETF investors, gold is an ideal choice, because of its low cost and easily accessible structure.

The launch of China’s gold fund will open up a huge market for those currently looking to invest in gold ETFs and is the first of it its kind to be available to mainland investors. The move should only further gold’s status as being one of the hottest investment products at this time. [Read: Four Reasons The “Yellow Metal” Will Hit $1,900 an Ounce in 2011]

It has also been rumored that China is currently considering launching a silver ETF as well. Silver is a cheaper investment option than gold, making it more favorable to some.  Silver prices as well as the iShares Silver ETF (NYSE:SLV) have also been on the rise recently, a trend to watch in the coming months.  [Visit Our iShares Silver ETF (NYSE:SLV) Category]

ETF Daily News Disclosure:  No positions at time of writing.

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