The Dark Side of China’s Gold Frenzy

Business|The Dark Side of China’s Gold Frenzy

As the price of gold soared, Julie Li thought her investment in the precious metal was the smartest decision she had ever made. Across China, many like her have poured their savings into gold, lured by companies promising hefty returns far into the future.

About a year ago, Ms. Li invested about $35,000 in gold bars through Yongkun Gold, a company that runs an online platform and dozens of jewelry shops in eastern China. The investments performed so well that she used a credit card to put in $20,000 more.

Last month, Ms. Li and thousands of other Yongkun Gold investors were supposed to receive a payout from their accounts. Instead, the company halted all withdrawals and shuttered its shops. Its headquarters in the eastern Chinese city of Hangzhou closed, and the company stopped responding to calls and messages.

“That’s all my savings,” said Ms. Li, 28, who works as a customer service agent in China’s southwestern Sichuan Province. “The salesperson kept telling me that gold prices will keep rising.”

The enthusiasm of individual investors like Ms. Li has been a major factor in supercharging the price of gold, which has recently set a series of records. In the first three months of the year, Chinese investors bought roughly 124 metric tons of gold bars and coins, a 12 percent rise from the previous year and far more than investors in any other country, according to the World Gold Council.

The plight of Ms. Li and many other gold investors whose money may be lost is a worry for Chinese officials, who are sensitive to any potential source of social unrest. The local police have started a criminal investigation into the company.