By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — For Asians unnerved about a global currency war, a new weapon is about to emerge: a gold exchange-traded fund that stores its bullion in Chinese vaults.
The Value Gold ETF (HK:3081 33.95, 0.00, 0.00%) , which debuted Wednesday in Hong Kong, is the first in Asia in which underlying holdings will be held locally instead of outside jurisdictions such as London.
Units of the fund will represent physical gold held at a high-security depository at the Hong Kong’s Chek Lap Kok Airport, according to managers of the fund, Sensible Asset Management HK, a joint venture between Ping An Insurance Group Co. (HK:2318 87.75, +1.25, +1.45%) (PNGAY 22.35, -0.05, -0.22%) and regional funds-provider Value Partners.
“The whole reason to invest in a product backed by physical gold is that it doesn’t have counterparty risk,” Standard Bank’s John Wixley told MarketWatch in Hong Kong.
Wixley, the South African bank’s head of Asia markets, added: “Having that gold located locally makes it very secure, as opposed to having it in a vault in London with third parties that the investor might not be as familiar with.”
Standard Bank — which is 20% owned by Chinese lender Industrial & Commercial Bank of China Ltd. (CN:601398 4.59, +0.14, +3.15%) (HK:1398 6.62, +0.21, +3.28%) (IDCBF 0.82, +0.03, +3.67%) — is the main bullion provider to the fund and will also act as dealer and broker.
Of the roughly 70 million ounces of physical bullion backing gold exchange-traded funds worldwide, less than 1% of physical bullion was held within Asia, Wixley said.
Holding bullion overseas appears out of synch with the emergence of India and China as the world’s top consumers of the metal, even as the gold market has been historically been centered around London, he said.
Golden time
Though planned for more than a year, the fund’s launch comes at a time of heightened anxiety over global currencies and the slide in the value of the U.S. dollar.
The weaker dollar is of particular concern in Hong Kong, which faces increased pressure to sever its 27-year-old peg to the greenback in favor a link to the Chinese yuan.
Noted financial adviser Marc Faber warned in September that physical gold holdings in the U.S. and Switzerland were subject to the possibility — considered remote by mainstream observers — of forced sales to the government.
Precious metals investments held in the Hong Kong or Singapore banks were safer, as these jurisdictions are influenced by China and appear likely to resist U.S. political pressure on individual investors, he said.
Moreover, history suggests it can be prudent to hold gold in multiple jurisdictions. The Roosevelt Administration outlawed private gold ownership during the height of the Great Depression, forbidding individuals from owning more than $100 worth of bullion or gold certificates, or to stockpile the metal for uses other than art or industry.
Wixley said bullion held in Hong Kong was more convenient for regional investors who wanted to take physical delivery. He added that some gold ETFs may be unclear about where their underlying bullion is held, or whether they lease the physical metal to outside parties.
