China has decided to launch its largest ever gold investment fund as part of the “Silk Road” initiative aimed at boosting trade. The $16 billion “Silk Road Gold Fund” will be run by a new company and will make strategic investments in mining and other business related to the yellow metal. According to local media reports, setting up of the fund is likely to boost global gold market.

The gold fund led by the Shanghai Gold Exchange will have other investors too. Shandong Gold Group, the parent of Shandong Gold Mining, and Shaanxi Gold Group will take 35% and 25% stakes in the new fund. Also, Shanghai-listed Industrial Bank Co. and Sichuan Western Resources Holding Co. will hold 15% stake each. The targeted $16 billion will be raised in three tranches.

The gold fund will initially focus on investing in China’s gold mines so as to strengthen ties with other countries in the Eastern and Western Asia. It plans to buy stakes in gold mines and companies using private equity and venture capital methods. The new fund also will be also used towards making investments in quality gold-miner stocks and setting up of gold exchange-traded funds.

The setting up of the fund is believed to provide a big boost to China’s power over world gold market. The country, being the largest producer and consumer of the precious metal, plays key role in determining the direction of world gold market. Incidentally, Asian region accounts for more than 70% of the global gold demand. However, declining appetite for commodities and gold among consumers is feared to pose threat to the fund initiatives. According to latest Demand Trends Report by the World Gold Council (WGC), slower economic growth has resulted in 10% drop in gold jewellery demand in China during the first quarter of the year.

The “Silk Road” project, officially launched in March this year, aims to create an economic zone extending more than 8,000 miles. The ultimate goal of the project is to double the country’s economy over the next decade.