Transcription
[Music] Some people say gold prices are rising so exaggeratedly, buying gold is equivalent to making money. But do you know that in Shenzhen, some gold shops are no longer selling gold, but gambling with gold? They enter the market to gamble. Today, the gold market has become a sparkling casino. This episode will take everyone to read Gao Tianyou's article "Gold Prices Keep Rising, Gold Shops Are Casinos."
Last March, when the international gold price broke through $2,000 USD, setting a record high, we had gold shops that were "playing tricks" on customers, causing them to lose all their money. Behind this involved a "chicken coop" system called gold custody. Time flies again. As it approaches $4,000 USD, the "chicken beasts" of gold dealers, also known as "pig keepers," have turned the street in Shenzhen's Shuibei area into a street of gold. Recently, three gold companies were investigated by the authorities for allegedly conducting business with leverage up to 80 times, turning the market into a casino.
International gold prices have been rising since September 2022. At that time, the market price was around $1,600 USD. Due to a surge, it is currently challenging the $4,200 USD mark. In just three years, it has risen by 150%, significantly outperforming the S&P 500 and A-shares. According to the latest analysis report from the US, gold prices are expected to rise to $6,000 USD next year.
As gold prices continue to break records, there is a gold fever among the public. Many Hong Kong people are taking gold out of their safety deposit boxes and from under their beds to sell at gold shops. The prices offered are particularly attractive. Recently, large crowds of citizens have been queuing up daily to buy and sell gold. This shop announces its closing time daily.
On the other hand, compared to Hong Kong's gold shops, the prices offered by the industry in Shenzhen are particularly high. The price difference is significant. Therefore, some Hong Kong people are willing to bring their gold jewelry to Shenzhen to sell. Among them, Shenzhen's Shuibei area is the most popular among Hong Kong people. This area is known as "Pig Keeper Street" and has tens of thousands of merchants. It is one of the most important global hubs for jewelry and gold. While Hong Kong people are keen on selling gold, mainland Chinese people are eager to buy gold. Many people believe that gold prices are on a bull run and want to get on the train. Therefore, Shuibei is crowded with people every day.
From mainland China, middle-aged people carry large stacks of cash to buy gold bars and ingots. Young people spend 1,000 RMB to buy gold grains, hoping to achieve wealth. However, Shuibei has recently been in the spotlight. According to the Shenzhen Gold Jewelry Industry Association, last week, three gold companies in Shuibei were investigated by the authorities for alleged illegal business operations. It was pointed out that the responsible persons of the relevant companies have been subjected to compulsory measures and will face serious legal consequences.
According to a report from First Financial, the so-called "non-transactional" business is a model in the Shuibei market. It mainly involves some downstream manufacturers and sellers paying upfront gold to upstream suppliers to lock in gold prices and obtain raw materials. In theory, this model helps gold companies reduce operating costs and avoid insufficient supply due to price fluctuations. Generally, after the upstream and downstream parties reach an agreement, they will operate in the market.
As gold prices continue to rise and break records, more and more people are interested in participating in this business. Some upstream suppliers have abandoned the locked-in gold model. This not only provides raw materials for gold shops but also accepts individual customers. Some even set up online platforms to attract retail investors, and through upstream and downstream channels, it's like turning the market into a casino.
Currently, futures on the Shanghai Gold Exchange require a margin of 4% to 10%. The Shuibei suppliers' model only charges a deposit of as low as 1.25%. The entry threshold is very low, making it very attractive to leverage up to 80 times.
As gold prices rise, some people buy, and some sell. Many upstream suppliers further hedge in the spot market. After fully hedging, they act as their own dealers, and the risk of digesting the market is increasing daily. Especially recently, if there is no sufficient hedging in the market, it is easy to go bankrupt due to a lack of goods. There will inevitably be a large number of defaults.
Private accounts have long been an issue. In September, one of the large merchants in Shuibei suddenly reported that due to trading losses, their funds had been illegally operated for at least a year, amounting to at least tens of millions of RMB. For example, according to industry analysis, the explosion of private accounts has attracted attention and prompted Shenzhen authorities to investigate multiple suspected merchants in Shuibei.
As mentioned in an article last March about gold shops in Beijing, at that time, gold shops in Beijing did not give any warning. They claimed to save costs and even obtain two to three times the profit. However, some gold shops sold their entrusted gold to invest in real estate with high returns. As the domestic market and gold prices plummeted, some gold shops could not repay their customers and had no choice but to run away.
From this, it can be seen that while some people benefit, the most tragic are those who are caught up in the "chicken coop" scheme. Not only are their profits wiped out, but they also suffer heavy losses. Ultimately, whether prices rise or fall, investors are best advised to participate in the gold market through channels such as futures and options. Never gamble in a casino-like model that boasts low entry barriers, high returns, and high leverage.
That's all for this episode. We will discuss hot topics with you next time. Goodbye. We are offering an exclusive YouTube discount. Just scan this QR code to get the online version for only 30 RMB per month. That's less than 1 RMB per day. Subscribe quickly! [Music]