Adjust the margin, control the quota, and guide banks to conduct precious metal trading rationally.

Li Yunqi China Securities Journal

Recently, China Merchants Bank announced that starting from March 23, the trading spread for its gold account business will be widened from 3 yuan/gram to 5 yuan/gram, increasing transaction costs for investors. Since the beginning of this year, multiple banks have intensively released market risk warnings for precious metals business and have implemented measures such as dynamic limits on precious metals trading and increasing trading spreads. Against the backdrop of increased volatility in precious metal prices, banks are taking multiple measures to guide investors to participate cautiously.

Increase in Gold Account Trading Spread

China Merchants Bank recently issued a notice regarding the adjustment of the trading spread for its gold account business, indicating that due to increased volatility in the gold market, in order to prevent related risks, starting from March 23, the trading spread for buy and sell transactions of gold accounts at the same quotation point will be adjusted to 5 yuan/gram, with the buying spread increased by 2 yuan/gram and the selling spread remaining unchanged. The adjusted spread scheme is expected to run until June 27. From the market opening on June 29, the buy and sell spreads at the same quotation point will be adjusted to 2.5 yuan/gram respectively.

A reporter from China Securities Journal consulted the customer service manager of China Merchants Bank regarding this matter. The customer service manager indicated that before March 23, the trading spread for gold accounts at the same quotation point was 3 yuan/gram, and there was no strict distinction between buying and selling spreads. From March 23 to June 27, the buying spread increased by 2 yuan/gram, making the trading spread at the same quotation point accordingly increase to 5 yuan/gram. Since existing customers had purchased before March 23, the adjustment of the buying spread does not affect existing customers. Starting from June 29, the gold account will implement a new balanced spread model, where both buying and selling spreads will be 2.5 yuan/gram.

What is the trading spread? The reporter saw in the “Service Agreement for Retail Customers’ Gold Account Business of China Merchants Bank” that due to certain transaction costs, there will be a price difference between the buy and sell quotations of the gold account and the real-time reference price of the Shanghai Gold Exchange gold contracts or the international gold spot market. At the same quotation point, there will also be a price difference (i.e., trading spread) between the buying price and the selling price of the gold account, with the selling price being lower than the buying price. The trading spread is not a fixed value, and China Merchants Bank has the right to adjust the trading spread for gold accounts based on the gold market situation. On March 25, the reporter saw on the China Merchants Bank App that the buying price for gold was 1018.08 yuan/gram, and the selling price was 1013.08 yuan/gram, resulting in a difference of 5 yuan/gram, which is the trading spread.

Adjustments in Accumulated Gold Business

In fact, several banks have recently made adjustments to their accumulated gold business. For example, Jiangsu Bank announced on February 27 that starting from March 19 at 20:00, it would adjust the trading spreads for gold accumulation according to fluctuations in international and domestic gold prices and market liquidity. This spread is not fixed; in addition to the transaction fees charged by the bank, new price differences caused by fluctuations in gold prices and market liquidity will result in a situation where the trading spread exceeds the transaction fees. The excess price difference is not the bank’s fee, but a trading price difference caused by market liquidity and other factors. China Construction Bank announced on March 3 that to further enhance risk control, it would implement dynamic trading limit management for its gold products (including easy storage gold) starting from March 4.

The aforementioned customer service manager from China Merchants Bank stated that the main reason for the adjustment in the accumulated gold business is market changes. Recently, significant volatility in the gold market, increased liquidity risks, and significantly higher transaction costs have adversely affected the smooth operation of bank business and customers’ autonomous trading, leading to the adjustment of the trading spread.

Qu Rui, Senior Vice President of Research and Development at Dongfang Jincheng, stated that recent expectations of inflation rebound have significantly cooled the Fed’s interest rate cut expectations, and the sharp rise in U.S. Treasury yields has led to tightening liquidity, resulting in noticeable fluctuations in gold prices. In the short term, high oil prices will make the prospects for Fed interest rate cuts unclear, potentially putting pressure on gold prices.

Avoiding Price Volatility Risks

The significant fluctuations in gold prices have also prompted banks to issue risk warnings. On March 24, China Merchants Bank announced that there are many uncertainties in the precious metals market recently, leading to increased price volatility. Customers are urged to enhance their risk awareness regarding precious metals business and to conduct precious metals investment activities rationally based on their financial situation, risk tolerance, and investment experience, reasonably control the scale of their precious metals asset holdings, avoid short-term speculation or herd trading, and rationally allocate precious metals assets from a long-term asset allocation perspective, controlling the overall investment amount and ensuring diversified layout.

Qu Rui suggested that investors should maintain a wait-and-see approach in the short term to avoid risks from blind operations; in the medium to long term, they can seize opportunities to build positions during pullbacks, treating gold as a hedging tool comprising 5%-10% of their asset portfolio, focusing on core catalytic factors such as Fed interest rate cut windows, and staying alert to potential risks such as inflation exceeding expectations.

(Edited by Qian Xiaorui)

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