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Chinese banks further tighten restrictions on their clients’ investment in precious metals amid increased volatility in global and domestic markets.
Industrial and Commercial Bank of China (ICBC), the country’s largest lender by asset, will suspend new position opening for account-based gold and silver trading, starting from 8 am on August 15, the bank said in a statement on Friday.
Considering the uncertainties in the global commodity market, clients with outstanding positions in commodities are advised to control positions and pay attentions to investment risks, said the ICBC.
This marks ICBC’s second scale-back on precious metal trading business this month and the seventh so far this year. Earlier, the bank had raised the margin requirement on individual clients’ precious metal transactions six times this year from 23% all the way to 42%.
China Construction Bank, one of the country’s Big Four state-owned lenders, said in a statement on Monday that, starting from 7 am August 15, the bank will suspend account-based gold and silver buying, conversion and setting and changes of automatic precious metal investment products.
The bank will also suspend short position opening of account-based precious metal trading and terminate automatic investment plan of account-based gold, silver and platinum, it said.
Earlier this year, banks including Huaxia Bank, China Everbright Bank and China Industrial Bank had also imposed restrictions on clients’ precious metal trading, including raising margin requirements, suspending new position opening and terminating contract with clients who had no position of precious metals, etc.
Since 2020, more than 20 Chinese banks have scaled back their precious metal investment businesses, and industry insiders say that the banks’ scale-back of precious metal business came after the huge losses for Bank of China’s clients who invested in Crude Oil Treasury, a product linked with US crude oil futures when oil prices turned negative in April 2020. China’s securities regulator fined the state-owned bank more than 50 million yuan ($7.4 million).
“Maybe due of the impact of the Crude Oil Treasury, banks have realized the risks associated with this type of products and have been lowering leverage on the product,” said an experienced gold investor.
“Previously, the margin requirement (for gold trading) was as low as 10%, so I could invest at 10 times leverage, but now two times leverage at most, meaning much more restrictions on trading, but also significantly lower risks.”
“Banks have also shortened trading hours for precious metal trading,” he said. “As gold volatility increases when US and Europe trading sessions start, many banks cancel night trading hours in China in order to avoid higher volatility.”
Lenders will likely continue to tighten restrictions on precious metal business before entirely removing it and only retain products related to physical assets, industry insiders say.
Driven by intensifying geopolitical tensions and high inflation in major economies, gold prices spiked earlier this year and hit $2,069.94 per ounce on March 8. However, as the US Federal Reserves hiked interest rates since the second quarter of the year, volatilities of gold prices increased, falling below $1,700 per ounce this month.
Last week, gold prices hit its lowest level in 11 months after US consumer prices surged by more than expected in June, adding further pressure on the Fed to go more aggressive on rate hikes.Â
On July 6, the Shanghai Gold Exchange said in a statement that market risks had spiked amid rising volatility in the global commodity market and the bourse told members to increase risk prevention, make contingence plans and reasonably control positions.
The exchange would take appropriate risk control measures according to market condition to safeguard market stability and protect investors’ interests, it said at the time.