BEIJING (Commodity Online): With the soaring Gold prices luring millions of small investors into the bullion market, a new illegal trade is also thriving in China.

With more and more people, lured by the rising yellow metal prices, wishing to make a profit from the bullion market, black market has become rampant in China now.
 
Hundreds of underground gold dealers are luring investors who are keen on punting in the yellow metal, but stumped by the high entry barriers set by the gold bourses.

Not surprisingly, these black markets promise high returns and low costs to anyone willing to invest a sizeable amount for trading.

What the punters really do not know is that they are actually parking their bets with illegal brokers who have no access to the gold exchange. The black market dealers are not brokers, rather they are more like the bankers in a casino with little capital or reserves, other than the deposits they take from clients, to cover losses.

Many of these illegal institutions claim they can trade Gold in London or Hong Kong, but they have no ties with the London Metal Exchange (LME) or Hong Kong market. Instead, they open an account with their clients’ money and do high-leverage betting on their own.

Currently, only Shanghai Gold Exchange members and futures companies under the aegis of China Securities Regulatory Commission (CSRC) are permitted to do gold-related investments, said analysts.

Parking the money with the black market traders can be proved dangerous as all they show is a phony trading record and vanish when you ask for money.

These illegal gold brokers have disrupted the gold market and lured business away from certified gold trading institutions.

Gold prices closed at $955 per ounce on Monday in London. By the end of June, more than 600,000 gold investment accounts were opened in China.

Gold serves as a stable investment tool to retain value during the global financial crisis.

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