Chapter 28: The London Gold Market

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The new week began with Chinese Online hitting the daily upper limit twice, sending its share price to 41.65 yuan and setting another historic high.

It had climbed to the top of the Dragon-Tiger List for the third time, becoming the hottest stock in the market this year after Storm Technology.

“Even if the Voice makes an incorrect prediction, it will not disappear. But the outcome can be distorted by human factors.”

For the past two days, Lu Liang had chosen to stay out of the market and watch from the sidelines. Although he had missed two consecutive limit-up days, the decision had indirectly confirmed his theory.

The information provided by the Voice was not one hundred percent accurate, because his very existence was the greatest source of uncertainty.

Twice, after Lu Liang had made twelve million yuan from them, they had been forced into near-total liquidation, violently clearing their positions and cashing out at the top.

The main forces in the market had no choice but to push the share price even higher. Otherwise, their capital could easily become trapped.

“The Voice rings at midnight.”

“Perhaps the trigger is related to the matters I encounter?”

Lu Liang recorded his observations in a notebook. Then he tore out the page and threw it into the ashtray.

He lit a cigarette, drew deeply, and exhaled a cloud of smoke as he watched the flames dance among the ashes.

He waited until the crumpled paper had burned away completely.

That night, Lu Liang sat alone in his study, browsing financial news and quietly waiting for the midnight chime.

Today, the Shanghai Composite had achieved four consecutive days of gains, officially breaking through 5,100 points. The entire market was practically insane.

His former colleagues on social media were all posting photographs of the long queues outside the housing bureau.

The spectacle had continued for several weeks. People were either selling their homes or mortgaging their property to speculate in stocks.

“Can a spectacle like this really be good for the country?”

Having stayed out of the market for several days, Lu Liang had plenty of time to study it.

He was also a veteran of the real-estate industry and understood all too well how important property was to the domestic economy.

One could say that even the three major financial markets combined were worth less than a single hair on the real-estate market.

A house with a market value of one million yuan could generate more than five hundred thousand yuan in potential tax revenue. After labor costs were deducted from the remainder, what was left went to the property development group.

Real estate was linked to hundreds of industries, including building materials, home furnishings, and household appliances, while also creating enormous numbers of jobs.

Now everyone was selling homes to buy stocks, or taking the money meant for buying homes and putting it into the stock market. Was that really something the country wanted to see?

Probably not.

“The bull market should be coming to an end.”

Lu Liang stubbed out his cigarette and took a sip of coffee.

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At midnight, the chime rang, and a sound that seemed to come from another world echoed through his mind.

[June 5, London gold: 1,517.2500 points]

Lu Liang was stunned. He had imagined many possibilities, but he had never expected international spot gold.

Because it originated in London, it was known as London gold. It had a history of more than three hundred years and was now the world’s largest spot-gold trading market.

Its daily trading volume was approximately twenty trillion US dollars, equivalent to the size of twenty-five major A-share markets. As a result, no consortium or institution could manipulate it at will. It was governed entirely by the market itself.

“The current price is 1,347.1200 points, nearly one hundred and sixty points higher.”

Lu Liang narrowed his eyes, excitement flickering within them.

Since ancient times, gold had been the most stable form of primitive currency. Unless powerful nations came into direct conflict, or a financial crisis drove major capital toward safe-haven assets, the price of gold would rise steadily alongside inflation.

Because its fluctuations were relatively small, the market offered leverage of at least one hundred times. That was also why prices were quoted to four decimal places.

A rise of one hundred and sixty points might seem insignificant, but with the right operation, turning one hundred thousand into one billion was not impossible.

This also confirmed Lu Liang’s suspicion from another angle: the domestic bull market was nearing its end, and major capital was flowing into gold to hedge against risk.

The night grew deeper, yet the study remained lit.

With a cigarette constantly between his fingers and coffee never far from his lips, Lu Liang familiarized himself with the rules and methods of trading London gold.

London gold differed from A-shares. More precisely, A-shares were unlike the financial markets of every other country in the world.

The A-share market was the only one globally to use T plus one settlement. Anything bought today could be sold only tomorrow. Investors could go long, but not short.

With the exception of A-shares, all stock, fund, and foreign-exchange markets used T plus zero trading. Assets could be bought and sold on the same day, and investors could go either long or short.

This system favored institutions rather than retail investors. Although it had originally been designed to protect small investors, institutions had ultimately found one loophole after another.

London gold differed from the domestic stock market not only in using T plus zero trading, but also in its hours of operation.

Trading continued around the clock, twenty-four hours a day, from Monday evening until the early hours of Saturday morning. The market closed only on weekends.

Beginning at three in the afternoon, Yanjing Time, trading was divided into the European, American, and Asian sessions, broadly following the daylight hours of each region.

The most active period was from ten at night until five in the morning, Yanjing Time. Those seven hours accounted for nearly half of the day’s total trading volume.

This period covered the afternoon of the European session and the morning of the American session. Their combined activity far exceeded that of the Asian session.

By three-thirty in the morning, Lu Liang had a basic understanding of the market. There were still some things he did not fully grasp, but he intended to learn through actual practice.

He logged into his brokerage account, exchanged ten thousand US dollars, activated four-hundredfold leverage, and decisively entered the London-gold market.

The leverage on London gold was high for two reasons. First, price fluctuations were relatively small. Second, the trading threshold was extremely high.

Each transaction required a minimum of one lot. One lot equaled one hundred ounces, and one ounce of gold equaled 31.1035 grams.

With the international gold price at 272 yuan per gram, one hundred ounces equaled 3,110.35 grams. A single lot therefore required 846,000 yuan, or 133,200 US dollars.

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Lu Liang exchanged ten thousand US dollars. Five thousand served as margin, leaving the other five thousand as usable funds.

Even after financing, two million US dollars would be enough to buy only fifteen lots.

Unlike in the A-share market, where he routinely went all in, Lu Liang first bought five lots to go long and watched the market.

Whenever the price fell three points, he added another lot. If the decline exceeded five points, he would be liquidated.

If his margin proved insufficient, he would continue adding money to cover the position.

At five in the morning, the market had not yet truly taken off, but there were already signs of movement. The price of gold was beginning to rise slowly.

Lu Liang’s total investment reached eighty thousand US dollars, forty thousand of which was margin. The value of his position had climbed to 16.17 million US dollars.

Fourteen million was borrowed capital. Only seventeen thousand dollars truly belonged to him, and after deducting his principal, he had earned thirteen thousand dollars in profit.

“With the exchange rate at 6.35, that means I’ve made more than eight hundred thousand yuan?”

Lu Liang could not help marveling. The money had come far too quickly.

He had barely done anything. He simply added to his position when the price fell and held on when it rose.

There had been one dangerous moment, however, when the price plunged four points in an instant. He had nearly been liquidated.

Fortunately, he had ample funds in reserve. Lu Liang hurriedly added another twenty thousand dollars in margin, narrowly avoiding a forced closeout.

High leverage was a game of nerves.

He had to remain completely focused and could not afford even a moment of carelessness.

It was early June, and summer was gradually arriving. A little after five, the eastern horizon slowly began to pale.

The American session was about to end, and market activity was falling sharply.

Lu Liang rubbed his eyes and forced himself to stay awake, because the Asian session was about to take over.

If his guess was correct, the Asian market during the day would erupt with activity no less intense than that of the European and American sessions.

Lu Liang exchanged US dollars in advance, converting 5.84 million yuan into 920,000 US dollars and transferring the entire amount into his London-gold account.

There were still more than four million yuan in usable funds in his account, but he had reached his foreign-exchange conversion limit.

After making all the preparations, Lu Liang left the study. He planned to take a shower, eat breakfast, and restore his energy.

With more than nine hundred thousand dollars in margin now in the account, he no longer had to worry about being liquidated by intraday volatility.

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