(Yicai) March 6 -- The sudden closure of a Beijing-based franchise of China National Gold Group Gold Jewellery, one of China's central enterprises in the gold industry, has prompted insiders to suspect that the jewelry retailer was illegally acting as a custodian of gold.

After the Beijing store closed, multiple clients said to Yicai that the gold they had bought and deposited at the store could not be redeemed. Yicai contacted the Beijing-based state-owned company several times to inquire about the incident without a response.

Market insiders suspect that the store had illegally collected funds. This is not the first time that customers have reported difficulties in retrieving their gold bars stored at China Gold’s franchises in recent years. 

An experienced professional in the industry said that only qualified financial institutions such as banks can provide clients with gold custody services as the sector is under strict regulation and a gold retailer is not eligible to conduct such business.

On March 5, Yicai contacted a Shanghai outlet of China National Gold to ask about investing in gold bars and further buying possible custody services. An employee said that "we previously provided gold custody services which have now been suspended."

"What’s more worrying is that in order to lure customers, some gold stores would promise certain investment returns for gold under custody," the above-mentioned industry veteran said. "Such act is already beyond the legal business scope of gold shops, which allegedly causes an illegal collection of funds, further intensifying the risks."

In December 2018, the People’s Bank of China clarified in a document that only qualified financial institutions such as banks, trusts, securities funds, futures brokerages, institutional managers of insurance assets, as well as investment firms, are allowed to manage entrusted gold products. 

Despite the news, shares of China National Gold [SHA: 600916] climbed 2.5 percent higher to close at CNY11.17 (USD1.60).

Editor: Emmi Laine