Gold bars are displayed at the Worldwide Gold Bars Exhibition. The city's bullion exchange plans to launch a yuan-denominated gold contract. Haruyoshi Yamaguchi / Bloomberg

Local bullion exchange to launch yuan gold exchange contract as early as March

The Chinese Gold & Silver Exchange Society (CGSE), Hong Kong's century-old bullion exchange, said it will launch the first yuan-denominated gold exchange contract in the city as early as March this year.

Products in the first batch will be 1-kilogram and 3-kilogram gold bullions, Haywood Cheung, president of the CGSE told reporters during a media briefing on Monday.

Among the 171 member firms within the exchange, over one-third have expressed interest in participating, according to Cheung.

"Yuan-settled gold trading is likely to account for 20 to 30 percent of the total daily turnover in the city within six months, and some 30 percent of the deals are expected to be from mainland customers," Cheung added.

Gold prices rose almost 30 percent in 2010, an unprecedented tenth consecutive annual gain due to a combination of a weaker US dollar and global economic uncertainty, according to a Dec 31 report by Reuters.

"Investors in the city are interested in yuan-denominated gold as the market is buoyant and people are expecting a steady appreciation of the yuan in the long run," said Anthony Au, a manager with OSK Futures Hong Kong.

Au expects mainland investors to make up more than half of the total number of gold investors in Hong Kong engaging in yuan-settled trading. He says that this is because gold trading in the city is more transparent - in terms of quality and quoted price - than the mainland.

According to information compiled by India-based website Commodity Online, gold was still trading below $300 an ounce in 2001, but the price skyrocketed to $518 and $838 by year-end 2005 and 2007, respectively.

Prices climbed further to $1,400 an ounce last year. Gold was trading at $1,347.20 an ounce in London at press time Monday.

As Cheung believes gold price fundamentals are still sound, he forecasts that it will stabilize in a price range between $1,250 and $1,350 an ounce this year.

He added that if the gold price reaches $1,500 an ounce this year, it will have an opportunity to challenge $1,650 as the cyclical bull market in precious metals is expected to continue until 2015.

According to a December report in the Financial Times, Hong Kong is the world's third-largest gold trading hub. With demand for the yellow metal from the mainland remaining strong, the city's influence in global gold markets could still rise further.

In September 2010, Cheung had indicated the necessity of launching a yuan-denominated gold trading product in the city during an interview with Hong Kong Jewellery magazine.

He added such a launch would simultaneously strengthen Hong Kong's status as an offshore yuan clearing center and as a Chinese gold market.

China Daily

(HK Edition 02/08/2011 page3)