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Shanghai shines brighter with 'Gold Exchange'

Editor: Li Kun 丨CCTV.com

07-17-2015 15:08 BJT

By Tom McGregor, freelancer based in Beijing

The China and India markets have accounted for more than half of all global gold consumption for the past few years, however both countries hold little sway over the daily spot-pricing of the precious metal.

The premier hubs for contract gold trading are not in Asia, but at the London Gold Exchange and the U.S. Comex, which is operated by the Chicago Mercantile Exchange (CME) Group. But why does Shanghai or Mumbai not play a more pivotal role?

The World Gold Council (WGC) estimates that demand for bullion from China would likely reach 900-1,000 tons this year. Yet, China's onshore gold market only accounted for 4 percent of global turnover in 2013.

Accordingly, Beijing has given the green light for the Shanghai Gold Exchange (SGE) to establish gold-fixing to be denominated in China's RMB currency by the end of the year, while offshore investors can open gold accounts in the Shanghai Free Trade Zone this September.

SGE poised for global spotlight

The Shanghai Gold Exchange continues to enact new measures to spur more trading activities. As of last Friday, Hong Kong gold exchange members can now engage in direct trade on the SGE.

Already, 33 out of 117 China Gold & Silver Exchange (CGSE) members have registered for such privileges. They can trade Shanghai gold for clients, as well as for their own businesses.

Shen Gang, vice president of SGE, told the financial TV news network, CNBC, that China seeks to become the leading marketplace for gold trading since the country has produced and is holding the most gold reserves.

The SGE expects to pump up liquidity by inviting security firms, insurance companies and funds to trade on the exchange and to form potential partnerships with exchanges in Dubai, Hong Kong and the CME.

"The launch of a (gold exchange) benchmark in China," Jeremy East, global head of metals trading at Standard Chartered Bank, told CNBC, "will be a fundamental building block for the Chinese market."

RMB gold-pricing turns into a necessity

Beijing is moving forward to support RMB gold-spot pricing to internationalize its currency even further. The strategy would start with just a Yuan-fix for the local gold markets and later to cover the global markets as part of its overall currency reforms.

Additionally, the SGE is planning to offer more products to its clients to attract more trading volume. Economists are forecasting that China may double its gold imports to 2,000 metric tons in the next 2-3 years. Hence, transitioning gold pricing to RMB can add more impetus to the country’s economic influence around the world.

"We need gold-fixing in RMB," SGE Chairman Xu Luode told Platts newswire. "We have a U.S. dollar and a London pound, so we should have a price in China."

Such measures can create the right conditions for the SGE to transform into the world's largest gold trading hub.

Dubai joins golden partnership with China

As China hopes to emerge as the dominant player in the gold market, Dubai believes it can form a lasting partnership to ensure greater success for both nations. Dubai hosted a Precious Metals Summit last April and invited the Deputy General Manager of SGE Song Yu-qin as its keynote speaker.

The SGE and the Dubai Gold & Commodities Exchange signed an MOU (Memorandum of Understanding) an agreement of cooperation between the two trading platforms. Dubai holds the world’s largest gold refining capacity that feeds bullion to China.

Federic Pannezzetti, CEO of MKS Precious Metals DMCC, a gold refinery business based in Dubai, said to Platts that he anticipates the Chinese gold market to become “more free and more open” in the near future.

Shanghai adds more lustre to gold

Shanghai has transformed into a major cosmopolitan city that may surpass New York and London as a global hub for finance and banking in the next few decades. The SGE's efforts to introduce new trading mechanisms would likely open doors of opportunity for the Shanghai financial community, while garnering more control over gold-spot prices for the benefit of all Chinese investors.


( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )



Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

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