E FUND Management Co. has launched China’s third gold-backed exchange-traded fund (ETF), but, like its predecessors, the product has failed to make a splash as investors in the world’s biggest bullion user show a preference for physical metal.

    E Fund Gold ETF began trading yesterday and saw its value drop by 0.6 percent on the Shenzhen Stock Exchange.

    According to a statement published in domestic media, the fund raised 500.4 million yuan (US$82.42 million), which at current prices would buy it just about 2 tons of gold.

    The muted response to “paper” gold in China shows that investors prefer owning physical gold assets at a time of weakening prices. Spot gold has tumbled 26 percent this year and is set to post its first annual fall in 13 years.

    Chinese regulators have given the go-ahead to four funds since June to launch bullion-backed ETFs. But the timing has proven to be bad as besides the gold price fall, investors in China have also faced tightening liquidity since mid-year.

    China’s first two gold ETFs — HuaAn Gold ETF and Guotai Gold ETF — raised a total of 1.6 billion yuan in their initial funding round in July, below expectations.

    The world’s biggest gold ETF, New York-based SPDR Gold Trust, holds 827.60 tons, after more than 450 tons of outflows this year.

    “I don’t think the Chinese ETFs will be as popular as international ETFs such as SPDR, or physical gold,” said Chen Min, an analyst at Jinrui Futures in Shenzhen.

    “The success of SPDR is mainly because it was launched when gold was in a bull market. But now gold is in a lackluster market and investor sentiment is bearish. Chinese people favor physical gold, like bars or jewelry.”

    Chinese demand for physical gold has hit record highs this year and may top 1,000 tons.

    Bosera Funds, the fourth firm to get the approval from Chinese securities regulators to launch a gold fund, is yet to list the fund on the Shenzhen exchange.

    A Bosera spokesman said the ETF will begin trading only next year. (SD-Agencies)