Gold dealer Alvin Ching has survived financial disaster twice but still bets the sky's the limit as the metal rises FOR SOMEONE WHO has lost his shirt twice when the markets have crashed, bullion dealer Alvin Ching Man-kit is remarkably confident about the future of gold. With gold soaring from US$200 an ounce four years ago to around US$650 an ounce today, some may be wondering how high it can go. But not Mr Ching, president of the Chinese Gold and Silver Exchange Society - the local exchange which has been trading gold for 96 years. As a tipster, Mr Ching predicted last year that gold prices would double to at least US$600 this year. Now he reckons prices will climb even higher - up to US$700 per ounce soon, and before long back to its 1980 historic peak of US$850 per ounce. 'Some analysts even predict the gold price will shoot up to US$1,500 in the next three to four years. I think this prediction will come true. In fact, I think the sky is the limit,' Mr Ching says. 'Trust me, buy gold tomorrow, be it gold coins or the gold investment accounts at banks. Gold investment will be the best in the next two to thee years,' he says, sitting in his office in the exchange building in Sheung Wan. Speaking with the experience gained from having been a trader for 35 years, he hastens to add a warning - not just about buying gold, but anything. 'I would advise retail investors that the most important thing is to do their homework. To trade commodities and currencies, you need to know the world to make a fortune from a bucket of gold,' Mr Ching says, referring to an old Chinese saying. 'I have lost two fortunes. In 1972, I traded stocks and I lost my shirt in the 1973 stock market crash,' he says. 'Then I switched to trading gold in 1975 and I lost my shirt again in the mid-1980s. I did buy gold at almost its peak at US$830 an ounce.' He says many investors lost money because 'they did not do the homework, like me'. Mr Ching says it was strange that people tended to spend more time preparing their travel plans than their investments. 'When people spend $20,000 to travel with their girlfriends or wives, they spend a whole week studying the weather, the road map ... everything. When they trade shares for $2 million, they do not do anything but ask their brokers which stock to buy.' Mr Ching could have been a property developer had he followed in his father's footsteps. Instead, he opted for trading shares in 1972 after graduating from a United States university with a degree in international marketing in the early 1970s. 'My professor at university told me that if I wanted to make a fortune, I should trade stocks in Hong Kong because a lot of family businesses would list their companies' shares on the stock exchange.' He took the advice and made a large sum of money initially, only to lose it in the oil crisis-driven market crash of 1973. This forced him to shift his attention to gold which in 1975 stood at US$200 per ounce - about the same level it had dropped to four years ago. He captured the precious metal's golden era of trading in Hong Kong between 1976 and 1980, when the city was the second biggest gold trading centre in the world and retail and institutional investors were rushing to invest in the metal. The attractiveness of gold trading has since the 1970s been its high leverage, says Mr Ching. He says it is possible to use a fairly small amount of money to trade gold contracts at a value 20 or 30 times the deposit, but that stockbrokers usually demand deposits equal to 50 per cent of the value of the shares they trade. When the gold market went bust in 1985, investors shifted their focus to shares and property, while many gold traders left Hong Kong. Mr Ching says that many people wondered how, as a gold trader, he managed to survive. The key to surviving then, he says, was the same as it is today: by having more than one business interest. 'In Hong Kong, a lot of businessmen are involved in many different kinds of business at the same time. Even though I am trading gold, I am also doing a lot of business on the side, including securities trading, property development in China, and even operating an ice-cream parlour in Guangzhou,' he says. 'This is different from western businessmen who are more focused on one business, becoming specialists in that, as gold traders, they only trade gold, and as stock investors they are only interested in shares.' Mr Ching points out that gold prices started rising in 2001 and jumped substantially two years ago, and that usually a gold market bull run lasts 10 years, meaning it is now in the second stage of its rally. 'I am confident as once bull markets start, unless there is a very serious disaster, they will just keep running,' says Mr Ching, who has a long list of reasons for the rally. These include depreciation of the US dollar, the high oil price triggering fears of inflationary pressures, political tension, the central bank's decision to increase its gold reserves, and the September 11, 2001 terrorist attacks in the US. Central banks' and fund managers' investments have become more diversified. Before, these investors would put all their money into US dollars, but now they split it between with euros and gold to spread risk. The terrorist attacks in the US have meant long-term investors and central banks do not dare not make all of their investments in US dollar assets. 'Even if a country puts one per cent of its foreign reserves into gold, it will drive up gold prices substantially,' says Mr Ching. The gold price is also being driven by hot money and the increasing demand for gold as a form of savings and in jewellery in economically booming China and India. 'The share market has been booming for many years, but now people realise that gold is a tangible asset,' he says. Yet even in spite the gold price rally, however, he says the Chinese Gold and Silver Exchange Society has not seen a much stronger turnover, mainly because the exchange has not yet modernised its trading system. 'The exchange has a major problem in that it is using the open outcry method to trade, in which traders call out prices to conduct trading manually by verbal agreement and hand gestures. This is the same trading method we have used for 96 years,' he says. Mr Ching has been advocating a shift to electronic trading for two years, but it is proving to be a hard concept to sell. The move would allow traders to trade from their own offices instead of having to take to the trading floor, and it would mean trading hours could be extended to 24 hours a day. Mr Ching says that convincing people of the need for change is never easy. 'Since taking over the presidency two years ago, I have tried to convince others to accept the idea of going to electronic trading, but it has been just so difficult. 'Some people say they don't want any changes and some say they don't want to buy a computer or hire more staff.' Mr Ching, who has warned that Hong Kong will lose its gold exchange if changes aren't made, hopes details of the electronic trading will be released by the end of the year. The exchange's other project is to implement the planned establishment of a gold depository at Hong Kong International Airport, as announced by Financial Secretary Henry Tang Ying-yen in his Budget in February. 'We are in the initial stages and hope we can reach the final stage before the end of this year. The actual timetable will depend on Hong Kong International Airport Authority, which will have final approval of the budget for the project,' he says. The facility will benefit Hong Kong in many ways, says Mr Ching. Hong Kong will be the first gold depository centre in Asia and the third in the world after New York and London. 'It will be an honour for Hong Kong to have the gold depository in the Hong Kong International Airport. This will strengthen city's the gold market and its position as an international financial centre. 'By having the gold depository, western gold dealers can ship their gold into Hong Kong and put it in the depository at the airport before transferring it to other Asian countries.' This will shorten the settlement time for physical gold in Asia from two days to one, and enable new product launches which demand quicker physical gold settlement. Another of Mr Ching's major aims is to enhance co-operation with Shanghai Gold Exchange. 'Hong Kong and Shanghai will be the two major gold markets in China, just like New York and Chicago in the US,' he says. Mr Ching admits investing is his business and hobby, and that he likes trading round the clock at home through his computer and via wire services. 'I am a 24-hour investor. The Hong Kong stock market, the US stock market and then gold trading in the international market ... With the electronic trading and information vendor, it is so convenient for individual investors like me to trade from the home office, but then it also means that with all the markets opening I can never sleep,' he laughs. Biography Alvin Ching Man-kit, 59, has been president of the Chinese Gold & Silver Exchange Society since 2004. He has over 30 years' experience in financial investment especially in gold trading. He is the owner of Yee Fi Co and the chairman of Kong Zhao Development Co. He is a member of the Chinese People's Political Consultative Conference of Zhaoqing and Yunfu in Guangdong.