Opening-up fuels a glittering two decades

Trading center of precious metals shifts from West to East amid ups and downs in past 20 years

The center of gold and silver trading has shifted from West to East in tandem with the Chinese mainland's opening-up and Hong Kong's emergence as an offshore renminbi center, driving up demand in the past two decades, according to experts.

Haywood Cheung, president of the Chinese Gold and Silver Exchange Society (CGSE), said the sector has seen "fruitful growth" since the 1997 handover, with the trading volume having gone up tremendously, especially after the Chinese mainland introduced the Individual Visit Scheme in mid-2003 that allows mainland people to visit the SAR without having to join tour groups as in the past.

The trend has also been fuelled by the mainland's growing economic clout and a host of national economic strategies, while the pilot free trade zone has boosted their business, he said.

Cheung, who has 33 years' experience in the industry, recalled that when Loco London Gold was launched in 2008, its daily trading volume was just about HK$5 billion but, it's now seeing one of between HK$100 billion and HK$120 billion each day.

The Chinese Gold and Silver Exchange Society (CGSE) - the sole exchange recognized by the Hong Kong government and one of the world's top five gold trading platforms trading in physical gold and silver - boasts a membership of 171, comprising mostly banks, jewelry manufacturers, retail and bullion dealers and refineries, as well as general investors.

According to Cheung, 30 percent of their members are mainland companies with branches in Hong Kong since 2010.

He's optimistic the CGSE would be the corridor in Asia linking the mainland with other regions, and play a crucial role in the China-led Belt and Road Initiative (B&R), generating plenty of potential. A Gold Connect between Shenzhen and Hong Kong is likely to start by the end of this year and which could strengthen the SAR's role as the "super-connector".

A gold trading link between Shanghai and Hong Kong went into operation in 2015. The century-old exchange also set up operations in the Qianhai Free Trade Zone the same year by establishing the Shenzhen-Qianhai Chinese Gold and Silver Exchange Society.

The society started business in Qianhai with more than 60 member companies and a warehouse with a storage capacity of 1,500 tons of gold. Gold and silver trading is due to begin within three years. A temporary warehouse with a capacity of 50 to 100 tons of gold will be completed by the end of this year.

With the B&R gathering momentum, a memorandum of cooperation between the CGSE and the Singapore Bullion Market Association was signed in June this year to facilitate cross-border trading within the Asian region. Similar agreements have been sealed with the Dubai Gold and Commodities Exchange and the Hong Kong Myanmar Chamber of Commerce to promote development of the gold markets in Dubai and Myanmar.

Cheung said the CGSE will continue to implement its goals of stimulating the commoditization of gold, as well as renminbi internationalization, by forging closer and further cooperation with gold exchanges and gold merchants in countries involved in the B&R Initiative, and mutual accreditation of precious metal products.

The exchange launched the world's first offshore renminbi-denominated and renminbi-denominated gold product - renminbi kilobar gold - in 2011 with a daily transaction of around 20 billion to 30 billion yuan ($22.9 billion to $34.4 billion), which Cheung hoped will boost trading in the B&R region. Last month, it inked a deal with Hong Kong Exchanges and Clearing Ltd to advance the newly launched offshore renminbi and US dollar-denominated gold future products.

According to the CGSE, it will provide warehouse services in Qianhai to guarantee better supply for the products.

Tom Chan Pak-lam, chief executive officer of Success Finance Group - the financial arm of Success Universe Group - said the gold market had gone through ups and downs in terms of prices in the past 20 years. The group is a Hong Kong-based investment holding enterprise engaged in a range of businesses embracing securities, futures and foreign exchange trading, plus one-stop services, including property loans, insurance and money lending, and is a CGSE member.

He recalled that between 1993 and 2005, gold trading was in a dormant stage as both price volatility and trading volume were low. But, from 2005 to 2013, the gold market had begun to "wake up" due to global uncertainties, including the internet bubble burst and wild fluctuations each year.

He said the price of gold had been rising all the way from $252 an ounce in August, 1999 to $681 per ounce in October, 2008 before jumping to $1,921 per ounce prior to September, 2011. However, gold trading entered a period of adjustment, with prices falling by more than 20 percent from its peak in 2011 and was in decline till April, 2013 amid global uncertainties.

Prices underwent a period of consolidation after 2013 as investors became more interested in US-dollar assets due to expectations of quantitative easing, and the trend is expected to last three to five years.

Chan reckoned that the price of the precious metal had hit bottom although he couldn't identify any stimulus that would push it up significantly. He expects the price range to fluctuate between $1,200 and $1,350 per ounce for the rest of 2017 barring any "black swan" cropping up.

tingduan@chinadailyhk.com

(HK Edition 07/02/2017 page14)