The sudden closure of gold stores has occurred in many places in China as gold prices soar, causing consumers to suffer huge losses and triggering public outrage.
In response, state-owned China National Gold Group issued an announcement last week, stating that it would provide advance payments to consumers affected by the closure of its Beijing store.
A mainland Chinese financial expert noted that such “gold custody” practices in China are essentially a scam.
On April 1, Being-based China National Gold Group Gold Jewellery (China Gold), whose parent company is the state-owned China National Gold Group Corp., announced that its franchisee, Beijing Sandingyuan Gold and Jewelry Co. Ltd. (Sandingyuan), operating in the Beijing R&F Plaza Store, violated the franchise agreement signed with China Gold.
The store illegally acted as a “custodian” of gold for customers but stopped operations on Dec. 27, 2023, when it was unable to redeem the gold stored by consumers. The controller of Sandingyuan, surnamed Yang, has been detained on criminal charges, and the case has entered judicial proceedings.
China Gold also stated that it will provide payments to affected consumers.
Gold Deposit Service
With major Chinese real estate developers defaulting one after another, and with the recent stock market crash, many Chinese have turned to investing in gold to preserve their wealth amid China’s slumping economy.China Gold stores launched special gold depository services. When a consumer buys gold in a store, the store offers depository services, claiming that it’s safer than keeping it at the customer’s home.
The gold stores also offer incentives for deposit. For example, for every 100 grams of gold deposited in the store, the client can get an additional 2.5 grams of gold every year, which is equivalent to depositing money in a bank with a 2.5 percent interest rate. Therefore, many consumers choose to buy and store their gold in the stores.
As the price of gold continues to skyrocket, many people want to cash out their gold from the stores or renew their deposit. However, many customers across the country have complained they found that the stores had closed and that their gold had disappeared with the store owners.
When they contacted the gold company’s headquarters, they were told that those are franchise stores, not their directly operated stores, and are thus responsible for their own profits and losses, so if the operators run away, the headquarters is not responsible.
Chinese financial influencer Zhaoli Shushi, who has 3.36 million followers, said in a video that it was precisely because of the soaring price of gold that many gold stores have faced bankruptcy.
“So why do these gold stores help people deposit gold for free and even pay interest? The main purpose is to sell one gold to two or even three buyers. You buy gold from his store, and he tells you that the gold is deposited in his store and you cannot take it away [so that he can sell the same gold to other customers]. In fact, he may not need to have more gold at all to receive a lot of money from consumers—he is equivalent to using virtual gold to borrow money from consumers and only gives consumers 2.5 percent interest every year,” the influencer said.
He said that this interest is much lower than that of bank loans. He pointed out that the problem is that this model has a high risk; that is, when the price of gold skyrockets, the store will lose money. When consumers see that the price of gold has risen to such a high level, they want to cash in their gold or take their gold home, but the store does not have enough money or gold to give them after misappropriating their funds. That is why so many gold stores have made a run recently.
Some members of the Chinese public commented on social media that the gold stores’ behavior was “illegal fund-raising in the name of depositing gold” and that “if the price of gold drops, consumers’ money will buy more gold, and the stores will make a fortune; however, the price of gold has risen sharply, the stores have lost money and owners run away.”
Many commented that a lot of victims of the gold deposit scam have now reported the crime and that many people are planning to file civil lawsuits but are worried.
China’s Gold-Buying Spree
While the state-owned stores are scamming Chinese people domestically, the Chinese communist regime has been on a gold-buying spree on the international market amid the wars in Ukraine and the Middle East.
China’s central bank has been buying large amounts of gold for more than a year to expand the regime’s gold holdings, driving up the international gold price.
International media and observers have pointed out that the Chinese Communist Party (CCP) is holding gold to prepare for war to invade Taiwan and for the subsequent economic sanctions from the West.
