The Hong Kong Mercantile Exchange will start trading dollar-denominated gold futures on May 18, tapping demand for the metal which had rallied for 10 consecutive years.

The exchange received permission from the city's Securities and Futures Commission, it said in an e-mailed statement on Wednesday.

The futures will be the bourse's first product, and there are plans for industrial and other precious metals, energy, agriculture and commodity indices, it said. Gold futures are currently traded on the Comex division of the New York Mercantile Exchange.

Immediate-delivery gold soared almost 30 percent last year and this week reached a record $1,518.32 an ounce, as investors sought to protect their wealth from further currency debasement and accelerating inflation. Chinese demand may advance 15 percent this year as investors seek a hedge against inflationary pressure, according to the China Gold Association.

"Our new platform will offer Asia a bigger say in setting global commodity prices," Barry Cheung, chairman of the exchange, said in the statement. "Market participants in the region have had to rely on Western exchanges for price discovery," he said.

While gold futures trading on Asian exchanges has demonstrated significant growth, there is currently no contract that can serve as a regional benchmark contract for gold pricing, the bourse said on its website.

Without a regional benchmark, the price discovery process for gold is either confined to the local in-country market or must depend on the European or North American markets. In-country markets generally restrict foreign participation and often subject it to adverse currency restrictions or tax treatment. Meanwhile, global benchmark pricing from the western hemisphere provides imperfect hedging for Asia's trading community, it said.

"HKMEx is well positioned to address the demand of Asia's trading community for the establishment of a gold futures contract as the regional benchmark," it said.

The new Hong Kong gold futures will be 1 kilogram per contract, with physical delivery in Hong Kong. Trading hours will be between 8am and 11pm local time.

Trade on the Hong Kong bourse will start with at least 16 members including Morgan Stanley and MF Global UK Ltd, the exchange said. Transactions will be cleared through London-based LCH.Clearnet Ltd, the company said.

LCH.Clearnet is Europe's largest clearing house, and has members including the London Metal Exchange, the world's largest marketplace for copper and aluminum.

The Industrial & Commercial Bank of China, the world's largest lender by market value, bought a 10 percent stake in the Hong Kong Mercantile Exchange in December to become a founding shareholder.

Bloomberg - China Daily

(HK Edition 04/28/2011 page2)