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SCMP Reporter

GOLD is set to regain its glitter and now could be the time for investing, specialists claim.

   But with the practical problems of buying and keeping the precious metal, this is easier said than done.

  The banks have a solution, in 'paper gold' or gold bank accounts. An investor can buy and sell gold without ever having to take physical delivery of it through a gold bank account.

  These accounts not only solve the problem of how to keep your gold safe, they also make selling easier.

   Instead of turning up at the dealer's with a suitcase of gold bars, sales can be made over the telephone. Gold accounts have been around in Hong Kong for longer than many people working at banks can remember.

   Agnes Ting, marketing manager of Hongkong Bank, said: 'It is an old product, based on the Chinese tradition of holding gold as a more secure investment option.'     Hong Kong is one of the few places in this world where you can buy and sell gold without having to pay sales tax.

   Most Chinese banks in Hong Kong offer this facility and the details of the three major banks' gold accounts are shown in the table.

   The minimum balance for each is based on one tael of gold, at present costing at least $3,600.

   A tael is the Chinese measure of gold and is used for trading on the Hong Kong Gold and Silver Exchange.

   It differs from the troy ounce, which is used for bullion dealing in other major markets, in two ways: its 'fineness' (purity) is 99 per cent, compared to the troy ounce's 99.9 per cent; and it weighs slightly more, at around 1.2 troy ounces.

   All deals and balances in the gold accounts must be in multiples of the tael.

    Jimmy Tong, assistant general manager and deputy head of treasury at Hang Seng Bank, said: 'The gold is kept in our vaults and some is kept with gold dealers or merchants.'    As such it is fully insured against robbery.

   The banks warn customers, however, that in extenuating circumstances beyond the bank's control, such as wars or power failures, they are not responsible for any failure or delay in purchasing or liquidating the gold for account holders.

   Gold accounts are opened with cash deposits and then transferred into gold at the prevailing price.

  Account holders cannot deposit or withdraw gold bullion.

    Hang Seng Bank said that all the transactions for buying and selling through its Pass Book Gold Account were settled through current account balances - there are no cash transactions.

   Hongkong Bank offers two stand-alone gold accounts - Wayfoong Passbook Gold and Wayfoong Statement Gold.

  Wayfoong is a local name for the bank which, roughly translated, means collective wealth.

    The main difference is that the Statement Gold account provides regular statements rather than a pass book.

   When Hongkong Bank launched its integrated accounts in the 1990s, it extended the facility. Gold deposits are now available through the AssetVantage, PowerVantage and BusinessVantage accounts.

   The banks are keen to point out that there is no additional custodian fee for the safe-keeping of the gold, and telephone banking services are available to buy and sell at the current price.

   However, there is a spread between the price at which the bank buys and sells gold from account holders, of about six to eight dollars per tael, as the table shows.

   But one expert from Mocatta, which is part of the Standard Chartered group and reputed to be the world's oldest gold dealing company, pointed out that the banks charge considerably less than jewellers for a tael of gold.

  Large jewellers quote prices which may be $200 to $300 higher than the current price set by the local exchange.

   Once the world's common measures of value and the basis of all exchange rates, the importance of gold as an investment has lessened considerably in recent years.

   Strictly speaking, gold is not even an investment in the true sense of the word because it pays no interest or dividends, while gains - or losses - are only realised when it is sold.

   With high inflation and a depreciating currency, gold deposits might appeal to Hong Kong-based investors.

  In fact, gold has shown a rather poor performance in recent years, which would not have outstripped inflation in the territory.

   The international gold price has been trading between US$370 and US$400 per troy ounce over the past year and experts are divided as to whether the price is about to surge, drop or remain stagnant.

   Ms Ting of Hongkong Bank said: 'We are seeing a great shrinkage in interest in gold accounts as a savings option.

  'In Hong Kong, stocks, other securities and unit trusts have much higher potential gains.'    The price of gold is determined by supply and demand and there are different interpretations of how these factors will develop in future.

   Hang Seng Bank's Mr Tong said: 'After this year of a lacklustre gold market, people are beginning to feel it could be a good time to invest. It could have brighter prospects now.'     He added: 'Many factors affect the gold price,' citing inflation in the industrialised OECD nations as one major influence.

   Gold has traditionally been used as a hedge against inflation by the international investor.

    But whether potential increases in its value can beat Hong Kong inflation is another matter.

    The bulls believe that reduced output from mines, combined with increased demands from developing countries, will cause the price to rise.

   Others think that as the gold price edges up, major banks which bought large reserves at peak prices in 1987 and 1988 may sell their stocks and increase the supply.



Paper gold set to regain shine, say specialists