Singapore, Shanghai seeking roles as gold hubs

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SINGAPORE: Singapore will introduce a physical gold contract this year, while Shanghai starts international bullion trading, highlighting a push in the biggest consuming region to establish new price benchmarks as demand shifts east.

Singapore’s kilobar contract for 25kg of 99.99% purity may begin as soon as September, according to a statement from Singapore Exchange Ltd, the World Gold Council, the government’s trade-promotion body and the Singapore Bullion Market Association at an industry conference. The Shanghai Gold Exchange plans to start its contract priced and settled in yuan in the third quarter, Chairman Xu Luode told the same gathering.

Asian exchanges are developing bullion products as more of the world’s gold is processed and consumed in the region and the industry discusses changes to the century-old fixing benchmark in London. Asia accounted for 63% of total consumption of gold jewelry, bars and coins last year, up from 57% in 2010, according to the council, which plans to hold a meeting next month on changes to the fixing. China became the world’s largest user last year, boosting consumption as prices fell.

“The centre of the world for gold consumption is Asia, so it makes sense that the centre of price discovery for the physical market moves that way,” said Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd. “It’s only going to be positive for Asian gold demand.”

The Singapore government is promoting the city state as a centre for precious metals after removing the 7% goods and services tax on investment-grade gold, silver and platinum in October 2012. After the change, the trade in gold in Singapore rose 94% to S$35 billion (RM90 billion) in 2013 from a year earlier, the groups said in yesterday’s statement.

Shanghai is aiming to become a regional bullion-trading hub, luring foreigners with services such as 1,500 tonne storage vaults and access into the world’s largest physical-gold market, Xu said at the conference. The exchange has all the systems ready to start the platform in the city’s free-trade zone, including clearing and settlement, said Xu.

China started the zone in Shanghai this year as a testing ground for liberalising interest rates and currency usage. Foreigners’ access to China’s gold market will expand the range of investment options for yuan deposits around the world, which reached at least 1.5 trillion yuan (RM775 billion) in March, according to Standard Chartered plc estimates as of last month.

About 30% to 40% of new bullion demand comes from the so-called kilobar market, Ng Cheng Thye, chairman of the Singapore Bullion Market Association, told the conference in Singapore. The kilobar market is currently priced off the London fixing, which is under scrutiny, said Ng.

Precious metals are getting more attention from regulators after price rigging in everything from interbank lending rates to currencies led to fines and overhauled financial benchmarks.A new gold mechanism or changes to the current procedure should be based on executed trades rather than submitted quotes, be tradeable and not just a reference price, while data should be transparent, published and subject to audit, the producer-funded World Gold Council said last week. It will hold a meeting on July 7 in London for the industry to discuss changes. — Bloomberg

This article first appeared in The Edge Financial Daily, on June 26, 2014.