Influenced by multiple factors such as the Federal Reserve's loose monetary policy and the increasingly tense international political situation, the gold market has shown a fierce upward trend. On September 25th (Wednesday), the London spot gold price climbed to a new high of $2,670 per ounce, with a year-to-date increase of about 30%.
Under the current market environment, multiple wealth management companies, including China Merchants Wealth Management, Ping An Wealth Management, China Post Wealth Management, and Everbright Wealth Management, have begun issuing wealth management products linked to gold. According to an incomplete count by the First Financial Daily reporter, since August, a total of 33 wealth management products linked to gold investments have been issued, with most adopting structured investment strategies.
Industry insiders believe that purchasing wealth management products linked to gold is a prudent way to participate in gold investments and to potentially benefit from the rise in gold prices. These products typically use options strategies, with returns consisting of fixed income and options income. The fixed income comes from bonds, and the options income depends on the performance of gold. Industry insiders also caution that although the upward trend in gold prices is still present, the risk of short-term technical corrections is increasing. These products also carry multiple risks such as the inability to achieve high returns, a single-term structure, and insufficient risk warnings, so investors should be cautious.
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The issuance of structured gold wealth management products is accelerating.
Following a wave of gold-linked wealth management product issuance by wealth management companies at the beginning of the year, this trend has recently made a comeback. Wind data shows that since August, a total of 33 wealth management products linked to gold investments have been issued, involving multiple wealth management companies such as China Merchants Wealth Management, Ping An Wealth Management, China Post Wealth Management, and Everbright Wealth Management.
The performance comparison benchmarks for these products vary widely. For example, the "China Merchants Wealth Management Zhao Rui Focus Linkage Stable Progress Gold Shark Fin No. 3A" provides a performance comparison benchmark range of 1.4% to 5.10%. Another product, "Sunshine Qing Rui Yue Enjoyment 13th Edition (Gold Automatic Trigger Strategy)" issued by Everbright Wealth Management, has a performance comparison benchmark lower limit of 0.01% and an upper limit of 4.25%. The aforementioned wealth management products are all at R2 risk level, with term types ranging from 1 to 3 years, 6 to 12 months, and 3 to 6 months.
A "Gold Snowball" structured strategy gold wealth management product, "China Post Wealth Management Hongjin Closed 2024 No. 41 (Gold Automatic Trigger Strategy)", is about to end its fundraising status, with an establishment date of September 26, 2024. The product's prospectus shows that "Snowball" is a structured financial product that embeds an automatic trigger strategy option.
The characteristic of these products is that investors only need to pay a relatively small proportion of option fees. The product will be regularly observed during its existence period. If the product's linked target reaches the predetermined knockout condition on any knockout observation day, the product will automatically terminate and pay the investor the agreed coupon income and the remaining option fees. If the knockout condition is not triggered until the product expires, investors may only lose the option fees paid in advance, but they can still receive the agreed coupon income.
The trigger price for this product is set at the initial price of the linked target * 103%, that is, the Shanghai Gold Spot Contract (AU9999.SGE) * 103%.
During the validity period of the product, if any observation day shows that the observation price of the product linked to the gold price reaches or exceeds the predetermined trigger price, then the product will end on the agreed date after the observation day, and the expected annualized return of the product will be between 3.30% and 3.60%. On the contrary, if all observation prices on the observation days are below the trigger price, the expected annualized return of the product will be between 1.55% and 1.85%.Journalists, based on Wind data, have discovered that recently there have been numerous gold financial products that have been newly issued or are pending issuance, most of which are structured financial products. They mainly involve binary call auto-redemption type and shark fin type products. The "Little Snowball" from China Post Wealth Management also belongs to the binary call category.
Another product, "China Merchants Wealth Management China Merchants Wealth Management Zhao Rui Focus Linkage Stable Progress Gold Auto-trigger 12," issued by China Merchants Wealth Management, also adopts a similar approach. The product design takes risk control into account by investing in fixed-income assets to provide investors with principal protection. At the same time, through the automatic triggering mechanism of options, investors can gain additional returns when the price of gold rises without suffering losses due to a decline in gold prices.
Industry insiders told the journalist, "Options can be simply understood as 'betting big with small stakes, placing a bet.' If the actual market trend aligns with the investor's prediction (knock-out condition), the investor can receive the agreed-upon returns; if the actual market trend does not match the prediction, the investor may lose at most the option premium paid."
"Furthermore, this product will regularly check the performance of gold prices during its operation to determine if the knock-out condition is met, that is, on a certain observation date, the closing price of gold spot (Au.9999) compared to the initial price has increased by at least 3%. If the closing price of gold spot reaches this condition on any day, the product will trigger a knock-out event. If no knock-out event is triggered by the end of the product's term, the product will end as planned," explained the aforementioned person.
Cautious boarding
Faced with the unstoppable trend of gold prices, many market institutions have pointed out that the upward trend of gold prices has not yet reached its peak and are expected to achieve the largest annual increase since 2014 this year. Citigroup even made a guess that the gold price will reach $3,000 per ounce by mid-2025. Institutions have issued research reports suggesting that investors increase their exposure to gold through structured investment strategies, gold ETFs, or by investing in the stocks of gold mining companies.
"For structured financial products linked to gold prices, investors should mainly focus on two key elements: the first is the observation window period, that is, the observation dates for gold prices set within a specific time period by the product; the second is the product's execution price and barrier price, which determine the calculation method of the product's returns and potential knock-out conditions," a wealth management company person told the journalist.
According to the journalist's observation, these types of financial products will compare the price of gold on specific observation dates, with the benchmark being the gold price at the start of the product and the gold price on the observation date. Some closed-end products only make a price comparison at maturity, using the result of this comparison to determine the final product returns. However, some products set up multiple observation points throughout their entire operation, including the earliest observation period and regular observation periods, determining returns through multiple price comparisons, as long as one price change meets the predetermined conditions, the product's returns can be determined.
For example, the relevant products of China Post Wealth Management have arranged three observation dates, while the "Zhao Rui Focus Linkage Stable Progress Gold Auto-trigger 2" product launched by China Merchants Wealth Management has designed an observation cycle, initially set for three months later, followed by once a month, with a total of ten observation dates.
The aforementioned person said that the execution price is usually linked to the starting price of gold, generally the starting price multiplied by a specific percentage N%, and this ratio is used as a reference standard to compare the gold price on the observation date. The barrier price, especially in shark fin structure products, is used to set the highest and lowest limits of price fluctuations. This means that the high knock-out yield and the lowest yield agreed in such product contracts do not necessarily mean a high expected yield.Industry insiders caution that structured financial products are typically more complex in design and require investors to have a certain understanding of financial derivatives. It is recommended that investors thoroughly understand various terms, risk characteristics, types of underlying assets, product duration, whether the product can be redeemed and the conditions for redemption, product profit models, and related explanations when investing in a particular product. Investors should clarify the profit realization terms and the structural types of the product, have a clear understanding of the expected return rate, and pay attention to whether the conditions for its realization are stringent.
"Be cautious about the 'prosperous scene' of financial product returns brought about by the rise in gold prices," said Zhao Wei, a researcher at Puyi Standards. When considering such gold-based financial products, investors should first be alert to the risks brought by market fluctuations, such as the global economic situation, central bank policies, and geopolitical events, all of which may cause fluctuations in the net value of gold-linked financial products. Secondly, most gold-linked financial products are closed-end, and investors are not allowed to subscribe or redeem during the product's existence period, which may cause liquidity problems for investors who need to use funds temporarily.