In recent times, the gold market has witnessed an unprecedented surge, prompting financial institutions to reassess and modify their gold-related business strategiesAs of February 14, China Merchants Bank announced a revision to the minimum subscription amounts for gold accounts, coinciding with similar adjustments made earlier by the Bank of China, which raised the minimum purchase amount for its accumulation gold products.

During the course of our investigation, it became evident that banks were not only revising the initial subscription amounts but were also adjusting the interest rates associated with gold accountsAdditionally, several banks released risk advisories aimed at educating investors about the importance of risk management and the necessity of making informed investment decisions.

The adjustment of rules surrounding gold activities

In its announcement, China Merchants Bank indicated that starting February 24, 2025, the threshold for both gold account spot purchases and the starting point for fixed investment plans would increase from 1 gram for 650 yuan to 1 gram for 700 yuanThe Bank of China followed suit on February 7, declaring that the minimum purchase amount for its accumulation gold products would also be adjusted from 650 yuan to 700 yuan.

According to Xu Tao, a wealth management manager at a bank in Jinan, the decision to raise the minimum threshold for gold accumulation reflects compliance with the provisions outlined in the "Interim Measures for the Administration of Gold Accumulation Business," which states that the minimum transaction unit for gold accumulation is 1 gram. "Given the recent continuous rise in gold prices that have neared 700 yuan per gram, this adjustment was necessary," he stated.

Our investigation also revealed that various banks had modified interest rates related to their gold account offerings.

Starting February 12, China Merchants Bank revised downwards the interest rates applicable to its gold accounts

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The annualized rate for gold account current funds was adjusted to 0.01%, while the rates for three-month, six-month, nine-month, and one-year products were modified to 0.1%, 0.1%, 0.2%, and 0.3%, respectively.

When asked why these interest rates were lowered, a customer service representative from China Merchants Bank explained that the adjustments were a reflection of changes in market interest rates. "Recently, as gold prices have surged dramatically, consumer demand for gold has diminished, leading to increased inventoriesGiven an oversupply situation and the associated storage costs of physical gold, it became necessary to reduce the fixed interest rates," they elaboratedFurthermore, as the interest rates on Renminbi funds have been gradually decreasing yearly, banks must adjust the interest rates for gold accounts accordingly.

Following China Merchants Bank's lead, CITIC Bank also announced on February 15 that it would be adjusting the interest rates for personal accumulation gold fixed and current products, with reductions ranging from 23 to 58 basis points.

Moreover, Industrial Bank declared that beginning March 1, it would alter the regular fixed products for its profit-enhancing gold bars and accumulation goldNotably, the E-type gold bar product will cease to be available for purchase, while the F-type will be openWhen matured, the expected returns for the F-type gold bars weighing 1000g, 5000g, and 10000g over a three-year term will be 50g, 250g, and 500g respectively, which means a reduction of 10g, 50g, and 100g compared to the E-typeAdditionally, the annualized interest rates for regular accumulation gold fixed products will also see a declineAfter adjustment, the rates for three-month, six-month, twelve-month, and twenty-four-month will be 0.4%, 0.6%, 0.8%, and 1% respectively.

Warnings of “Non-guaranteed” risks from banks

According to Zhang Yalin, a gold analyst, whether it is the raising of thresholds for gold accumulation or the lowering of gold account interest rates, these moves serve as cautionary signals to investors about potential market pullbacks.

"These various actions taken by banks serve as reminders for investors to remain vigilant regarding potential risks in the future," Zhang remarked

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He believes that the fluctuating high price levels of gold also signify that investors need to be ready to handle the risks associated with price volatility and should consider adopting more cautious and diversified strategies in their investment portfolios.

Notably, on February 10, the Shanghai Gold Exchange issued a risk alert, advising investors to bolster their risk management efforts, effectively control their holdings, and make rational investment decisionsThe following day, the Exchange raised the margin levels for several contracts from 10% to 11% as well as adjusting the limit intervals from 9% to 10%; the margin for CAu99.99 contracts was revised from 65,000 yuan per hand to 70,000 yuan.

Soon after, several banks, including Agricultural Bank of China and CITIC Bank, also followed suit by issuing their risk advisories.

"These alerts remind investors of the potential volatility risks ahead, contributing to a market rationalization and better implementation of investor suitability management," Zhang noted.

On February 15, international gold prices saw an unexpected plunge from near-historic highsLondon spot gold settled at $2882.85 per ounce, down by $45.41, marking a 1.55% drop; New York gold closed at $2893.32 per ounce, down $63.88, a 2.16% decline.

Commenting on the significant drop in gold prices, Zhang provided his insights. "From a technical perspective, after several weeks of consecutive gains, excessive speculative positions began accumulating, and the emergence of a 'double top' structure triggered a wave of profit-taking which resulted in a sharp sell-off in gold pricesAdditionally, with expectations of interest rate hikes by the Federal Reserve rising, investors have increasingly favored assets offering higher returnsAt the same time, a decline in geopolitical risks has diminished the demand for gold as a safe-haven assetThe overall optimism regarding economic recovery has further facilitated a capital exodus from the gold market," he explained.

What lies ahead for gold prices?

Zhang indicated that while gold prices might continue to exhibit volatility in the short term, they remain a vital investment asset in the long term. "Gold, due to its unique characteristics, serves as an essential component of investment portfolios due to its hedging attributes against risks, low correlation with other asset classes, ability to serve as an inflation hedge, and its value storage capacity

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