China's 'Paper Gold' Ban: What it Means for Global Gold Prices

China's major banks have ended some precious-metals trading services for individual customers, sparking claims that the country is banning 'paper gold'. However, this move did not lead to an immediate supply squeeze or a sharp increase in global gold prices. Spot gold and gold futures for August delivery settled between $4,050 and $4,070 per ounce on Friday.

The affected services included Au(T+D), mAu(T+D) and Ag(T+D), which permit margin trading. Industrial and Commercial Bank of China (ICBC) stopped offering its individual precious-metals trading service linked to the Shanghai Gold Exchange after July 24, citing 'precious-metals risk management and business needs'.

Some lenders had already raised margin requirements for gold trading after it retreated sharply from its record high. The move was seen as a way to reduce exposure to risky retail trading. However, Chinese buyers can still purchase bars and coins, use gold savings plans, and invest through gold-backed ETFs.

The Shanghai Gold Exchange remains open, while futures continue trading on the Shanghai Futures Exchange. Jeffrey Christian, managing partner at commodities consultancy CPM Group, described the move as the completion of a five-year retreat from risky retail leveraged products.