Gold bracelets, watches and earrings are often marks of wealth. But gold trade is something entirely different.

It's a game full of risk, and profits can be elusive.

Gold trade is also becoming less elitist.

For quite some time, the Shanghai Gold Exchange (SGE), administered by the People's Bank of China, was only open to companies and institutional investors.

But on Christmas Day 2006, both institutional and individual investors were welcomed to buy and sell a new product, known as Au100g, which lowers the market access from 1 kg to 100 grams. This is significant because it means the SGE has formally opened its gold trade business to individual investors. Therefore, more citizens can trade gold in the financial market.

Understanding the trade

Cheng Fumin, President of the China Gold Association, noted that the annual demand for gold in China is about 200 tons, 95 percent of which is used for making jewelry and 5 percent is for investment. After the gold market is opened to individual investors, the gold used for investment is estimated to account for 15-20 percent of the total demand.

At present, the Industrial and Commercial Bank of China (ICBC) is connected with the transaction system of the SGE and publishes the market ups and downs. Meanwhile, ICBC acts as an intermediary for both sides.

After a deal is closed, investors have two choices. First, they can invest in the same way as in paper gold. ICBC stated that in order to encourage Chinese citizens' enthusiasm to invest in gold, ICBC should adopt favorable measures like eliminating gold storage fees. The second is that they can withdraw gold from the market, but they cannot re-trade the withdrawn gold in the market. But Cheng said after a complicated set of procedures, the withdrawn gold can be re-traded in the market.

Fully opening soon

According to SGE regulations, individual investors can trade gold by becoming a registered member with the SGE. Individual investors must open a gold trading account with the SGE with their real names. Then, the registered members can apply for opening an account in the SGE for individual investors. Individual investors should apply to members of the SGE for withdrawing gold. The gold can be withdrawn by members of the SGE, and individual investors can pick up gold in Shanghai, Beijing and Shenzhen.

Currently, members of the SGE are divided into three categories, including 20 financial members like commercial banks, 120 comprehensive members like the China Gold Group and nine other members. Those members are approved by the SGE and are authorized to offer investors gold transaction services and get a commission fee. The commission fee is set by authorized members and should be at most 0.15 percent.

"With the opening of the individual gold market, the readjustment in the SGE member structure will take place soon," said Niu Ye, an analyst with Flying Fund, an investment consultancy.

As a matter of fact, the SGE has been working on restructuring its members. Well-known domestic securities companies like Shenyin & Wanguo Inc. are also looking forward to becoming members of the SGE.

"Financial institutions including banks are penetrating individual investment in gold," said Niu. "It reflects the central bank's determination to open the gold market. More members, like securities companies, futures companies and some foreign financial institutions, will be engaged in the SGE."

The Chinese central bank is drafting a regulation concerning gold trade management, which notes "qualified overseas gold institutions can also enter the SGE after being approved." It is a clear sign that when the management regulation is passed, foreign institutions can also become players in the Chinese gold trade market.

"The participation of overseas members will bring Chinese gold trade closer to the international gold trade and enhance market fluidity," said Yang Yijun, a veteran gold analyst.

"It is beneficial to introduce more members into the Chinese gold market," said Liu Shan'en, senior economic analyst with the Beijing Gold Economic Research Center.

Risk still exists

Due to the steady increase of the international gold price, gold has caught the attention of more and more investors. After the gold trade market was opened to individual investors, many people are beginning to invest in the gold market. Beijing Review found out that many people believe that gold is sure to generate a profit. In reality, the gold market still harbors risks. And investors should not follow trends blindly.

Cheng warned those new to the industry that "to speculate in gold is different from gold collection." The investment value of a certain kind of gold needs multi-faceted investigation. Take the Lunar New Year commemorative bullion, for example. Cheng pointed out that many people tend to believe that the limited edition nature of the bullion will boost its value. However, as Cheng noted, the commission charges can interfere with realizing the value of the commemorative bullion.

Xia Yeliang, economics professor with Peking University, pointed out it is important to investigate the proper time for gold investment.

"In addition to the U.S. dollar, crude oil as well as the international political situation, many other factors also contribute to the fluctuation of gold prices," Xia said. "These include the interest rate of major European and American countries, the gold reserve of central banks of other countries and gold exploration expenses."

Xia suggested people buy gold when the price is relatively stable or low and they should also follow market trends.

Gold in China Gold has always been a symbol of fortune, but was also a form of currency until the 1970s. In 1976, the Jamaica Agreement, an international agreement among all countries, caused gold to cease as a form of currency. Gold is still used commercially and financially. Gold can be made into jewelry and artwork and sold to people. As a financial investment product, gold is not consumed but is put into banks or homes and can achieve appreciation through supply and demand in the market. In addition, gold reserves can also be used to fight against inflation. After the founding of the People's Republic of China in 1949, gold was managed by the government and individuals were not allowed to trade gold in the market. In 2003, a much more open policy in the gold market was adopted. Registered gold production and operating companies were able to buy and sell gold freely in the market. After that, individuals began to invest in gold as well. Currently, there are three kinds of gold transactions: gold commodities, paper gold and e-gold. Gold commodities include bullion, for instance. Paper gold transactions include gold futures, options, stocks or funds. E-gold transactions are completed electronically, usually using the Web interface. A computer user, for instance, may send a tiny amount of gold to another user account instantly anywhere in the world. However, e-gold transactions are not available in China yet.