Summary of Key Points
Recently, several banks, including Industrial and Commercial Bank of China (ICBC), Postal Savings Bank of China, Ping An Bank, and Guangfa Bank, have successively announced the termination of their personal precious metals trading services on behalf of the Shanghai Gold Exchange (SGEX). These services cover spot and deferred contracts for gold and silver. The main reasons for this decision are the volatile price movements of gold, the high risk associated with leveraged transactions, as well as regulatory guidance and banks' own risk management requirements. As a result, banks have significantly reduced these services, which primarily affect existing customers. At the same time, banks are increasing the margin requirements (up to 140%) to reduce leverage. In the future, individual investors will likely turn to lower-leveraged products such as savings-based gold investments and gold ETFs.
I. Multiple Banks Have Ceased Personal Precious Metals Trading Services: Which Products Are Affected?
The service terminated by ICBC is the "agency personal precious metals trading on behalf of SGEX," which includes nine types of contracts such as Au99.99 (physical gold), Au(T+D) (gold deferred), and Ag(T+D) (silver deferred). In simple terms, these are all products that allow investors to trade precious metals through bank channels on the SGEX, with deferred contracts being leveraged (for example, you could buy 100 yuan worth of gold with only a 10% margin).
Not only ICBC but also the Postal Savings Bank began making adjustments last year. Ping An Bank announced the closure of spot contract trading by the end of June, and Guangfa Bank plans to stop offering these services by the end of this month. These banks had already suspended new account openings and new trades a few years ago; now they are completely phasing out existing services. This means that customers who still hold these contracts need to close their positions (sell the contracts), sell the physical assets, or pick up the goods before their trading rights are revoked and their funds cannot be withdrawn normally.
II. Why Are Banks Ceasing These Services?
The decision to stop these services is not sudden and is based on three main reasons:
1. High Risk: The prices of precious metals are highly volatile due to geopolitical conflicts and Federal Reserve policies (for example, the price of gold in London has dropped by 27% recently). Leveraged deferred contracts are particularly risky; a sharp market decline could result in investors losing all their principal or even owing money to the bank (a situation known as "margin call"). There have been many disputes with banks over this issue.
2. Regulatory Guidance on Reducing Leverage: Regulators have been urging banks to control high-risk activities, especially those involving individual investors. Banks have been gradually reducing such services, and the recent cessation is a further implementation of these regulations.
3. Unprofitable for Banks: The cost of providing trading services to retail investors (including risk management and customer support) far exceeds the potential profits. Additionally, if customers lose money, banks may face reputational risks. Dong Ximiao, chief economist at China Merchants Bank Joint Stock Company Limited, stated that continuing to offer these services results in higher marginal costs than benefits for banks.
III. What Does Increasing the Margin Requirement to 140% Mean?
Precious metals deferred contracts are typically margin-based transactions with leverage (for example, a 10% margin allows you to buy 100 yuan worth of gold). By raising the margin requirement to 140%, it effectively eliminates leverage. This means that you would need to pay 140 yuan in margin to buy 100 yuan worth of gold, which essentially counteracts the potential for higher returns and instead requires a larger upfront investment to cover potential losses.
Why are banks doing this? The price movements of gold are so extreme that they fear customers might not be able to meet their margin requirements and could end up owing the bank money. For instance, Huaxia Bank raised the margin requirement for gold and silver deferred contracts to 140% in June, and China Bank of Communications raised it to 120%. This minimizes the risk for customers but also eliminates the opportunity for higher returns through leverage.
IV. What Should Existing Customers Do?
If you still hold these precious metals trading contracts with these banks, you need to take action promptly:
- ICBC Customers: You must sell the contracts, close your positions, or pick up the goods by July 24th and transfer the funds from your margin account. If you have no outstanding positions or debts, the bank will transfer the money to you automatically.
- Ping An/Guangfa Customers: You need to sell your holdings, transfer the funds, and cancel the contracts through the app or branch offices by the end of June.
If you don't act in time, your trading rights will be revoked, and you may not be able to sell your assets, and your funds could be locked up. It is recommended that you check your account status and take appropriate action as soon as possible if you have any positions.
V. How Should Individuals Invest in Precious Metals in the Future?
In the future, if you want to invest in precious metals, avoid leveraged trading services as banks will no longer offer them. Dong Ximiao suggests turning to lower-leveraged or unleveraged standardized products:
- Savings-Based Gold Investments: Similar to a savings plan where you deposit small amounts monthly and can withdraw the accumulated gold at a later date.
- Gold ETFs: These are funds that track the price of gold and can be traded easily through your stock account; they have no leverage.
- Physical Gold: Such as gold bars or coins, but consider the costs associated with storage and liquidation.
These products carry lower risks and are more suitable for ordinary investors as part of their asset allocation rather than for speculation. Although Goldman Sachs has lowered its target price for gold, Debong Securities believes that the long-term outlook for gold remains positive, although pricing is more complex due to geopolitical factors and interest rate expectations. For most people, choosing lower-leveraged products is a more prudent approach.
In summary, banks are stopping high-leveraged precious metals services to protect both investors and themselves. For ordinary investors, investing in precious metals should be more rational, avoiding the pursuit of quick profits, and focusing on more stable investment options.