Changing China

from Breakingviews:

China retail speculation adds risks to gold price

As gold prices surge to a new record, China's retail investors are trading more of the yellow metal, often using borrowed money. This is further evidence that recent high prices may not be sustained. Like investors around the world, Chinese individuals are buying gold because they are worried about inflation. After all, Beijing has already pumped an unprecedented amount of money into the system, sending asset prices higher. But Chinese retail investors are also known for their herd behaviour. Despite the recent sharp rise in gold prices, many have decided to jump in.

This is lucrative business for Chinese banks. During the first six months, mid-sized Xingye Bank, which offers gold trading business with Shanghai Gold Exchange, traded 20.9 billion yuan ($3 billion) worth of gold for its clients, almost three times as much as they did last year. Other than earning a commission for buying and selling for their clients, the bank is also making a gamble itself. It traded 15.3 billion yuan ($2 billion) worth of gold on its own account, up 15 percent from last year.

Risks can be big for Chinese investors. Like most retail investors, they are often at a disadvantage to international institutions because they lack up-to-date information. Moreover, big price changes in global markets often happen when China is asleep.

A greater source of concern, however, is that investors are placing leveraged bets. Leverage is not allowed in China's stock market, that's why people eager to maximize their returns have flocked to gold trading. At Xinye Bank, customers are allowed to borrow as much as 90 percent of the value of the gold contracts they are buying. Investors are also allowed to sell gold short, though most of them are choosing to place long bets. It is not uncommon for investors to use three to five times of leverage.

The risk does not stop with Chinese individuals, however. What happens in China can have a significant influence on world prices. China, already the world's biggest gold producer, has also become the precious metal's biggest consumer, overtaking India in the first half of this year.

Chinese gold purchases for investment reached a record high of 70 tonnes in 2008. That is 6 percent of the global amount which includes the sort of bullion, official coins and metal for investment purposes, according to the World Gold Council. Globally, retail demand for investment purposes increased 72 percent in 2008.

There are plenty of legitimate reasons for investors to buy gold. It is a hedge against inflation, and the ultimate store of value. But gold is just as prone to speculative bubbles as other asset classes -- particularly if investors are leveraging their bets. China's bullish retail investors are another reason investors should be wary about the latest gold price surge.

Those moving medal moments…

Remember the Black Power salutes from the podium in Mexico 1968?

The 2008 Beijing Olympics medal ceremonies might not produce anything to match that, but there has been no shortage of drama so far.

In the full emotional spectrum, we have had:

Anger – Swedish wrestler Ara Abrahamian stormed off the podium to dump his bronze on the mat in a protest against referees.

Tragedy – German weightlifter Matthias Steiner promised his dying wife he would honour her in Beijing, and clutched his gold next to a photo of her.

Confusion – Gymnastics fans still had their calculators out to decipher how American Nastia Liukin came second to China’s He Kexin after their identical score of 16.725 was decided by a convoluted tiebreak system.

Joy – Russia’s flamboyant pole vaulter Yelena Isinbayeva was bouncing up-and-down almost as much as she did for her world-record jump when she took her gold prize.

Who’s top of the medals table?

Americans looking at the medals table to the right of this blog, or on the official Games website, might be surprised to see the host country topping the chart with 39 gold medals and 68 in total.

The New York Times website, meanwhile, has the United States on top with a chart-leading 73 medals in total, 23 of them gold.

We at Reuters rank nations by the number of golds. It’s the way the IOC does it and, according to Reuters sports editor Paul Radford, it’s the way that makes most sense.

Here’s what Paul had to say when I asked him about it:

Reuters serves international clients across the whole world and most of them want their medals tables prioritised by gold medals. It seems that it is mainly North America which takes a different attitude and where the total number of medals is the criterion used.

I can’t see the logic of the total medals system at all. That means giving the same value to a bronze medal as you would to a gold. If you look at the expression on athletes’ faces as they just finish second or third, it’s often one of disappointment that they did not get gold and the chance to call themselves Olympic champions; it’s less often delight at being a silver or bronze medallist unless they started as rank outsiders.

Some people say the silver medallist is the first of the losers. I think that’s a bit harsh personally but you can take the point. Look at it another way. If Michael Phelps had won six golds and two silvers, would anyone have described that as a greater achievement than Mark Spitz’s seven-gold medal haul? The answer is clearly not.

So we’ll stick to the logical order of running our table in gold medals order. If that puts China first and the United States second, then so be it. Our aim is to be objective and favour no nation above any other.

Do you agree? Let us know in the comments.

PHOTO: A combination photo shows Michael Phelps of the U.S. holding each of his eight gold medals in the swimming competition at the Beijing 2008 Olympic Games. REUTERS/Staff

Isinbayeva’s golden moment

After the shock of Liu Xiang’s departure from the Games through injury, fans in the Bird’s Nest were given a golden moment to compensate at least slightly, as the peerless Yelena Isinbayeva broke her own world record in the pole vault.

The Russian made sure of the gold medal with just two jumps before returning to have a crack at raising her own best mark. After missing twice, she cleared 5.05 metres at the third attempt — with plenty to spare, it must be said.

PHOTO (TOP): Yelena Isinbayeva breaks the world record during the women’s pole vault final of the athletics competition in the National Stadium at the Beijing 2008 Olympic Games August 18, 2008. REUTERS/Dylan Martinez

PHOTO: (BOTTOM): Yelena Isinbayeva celebrates her gold medal and world record. REUTERS/Mike Blake

Basketball gold would cap Spain’s superb sporting year

Spanish sport is living a golden age, a magical year or a unique two months, depending on how long a view you’re taking. But will it continue on into Beijing?

Rafael Nadal’s victory over Nicolas Lapentti in Cincinnati means the 22-year-old is now certain to depose Roger Federer as world number one in tennis by August 18 at the latest.

Nadal’s twin victories in the French Open and at Wimbledon were just two of the highlights in a remarkable sporting summer for his country.

Carlos Sastre won the Tour de France last month, giving Spain their third victory in three years. Alberto Contador, last year’s winner, followed up his triumph with success in the Giro d’Italia.

The biggest success of all was Spain’s victory at Euro 2008, their first major tournament title in 44 years.

Now, there’s no way Spain are going to finish top of the medals table in Beijing. Sports minister Jaime Lissavetzky recently said the target was six golds at best.

Those medal hopes include Nadal, of course, as well as athletes like double champion Gervasio Deferr in gymnastics, synchronised swimmers Andrea Fuentes and Gemma Mengual and the walker Paquillo Fernandez.