Kitco News) - While this has not been widely reported in the Western media, news broke this week of a massive illegal gold-futures trading scam in China. Not only does it underscore the growing hunger for gold among the newly minted Chinese middle class, but also hits home the rationale for owning physical gold, according to one U.S. based asset manager.
Over 5,000 investors were bilked out of 380 billion yuan, or $59.62 billion in a scheme involving Loco London gold since 2008, according to a report in the China Daily.
While details are unclear how the scam worked, the implications could be bullish for gold in a number of ways. Perhaps gold prices could be at even higher levels than they are right now, if this money had been properly invested.
“That is obviously a very significant amount, this is an enormous scam,” said Adrian Day, president of Adrian Day Asset Management. Looking ahead, Day noted that “It might make Chinese investors turn towards the physical rather than esoteric contracts.”
Gold-trading ring took in billions
Police in Central China’s Henan province rounded up 33 people suspected of illegal gold-futures trading in a case involving more than 5,000 investors and at least 380 billion yuan($59.62 billion).
The suspects, who had been trading since October 2008, had never registered with industrialand commercial authorities, as required by the law, said Guo Congbin, director of Luoyangpublic security bureau, on Tuesday.