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 25 kilograms of 99.99% purity may begin as soon as September, according to a statement from Singapore Exchange, 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 center of the world for gold consumption is Asia, so it makes sense that the center 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.”
Gold for immediate delivery sank 28% last year, spurring demand across the region, as prospects for global growth and higher U.S. interest rates reduced the appeal of the metal as a store of value. The spot price was at US$1,311.63 ($1,639.93) an ounce at 11:29 a.m. in Singapore, up 9.2% this year.
METALS CENTRE
The Singapore government is promoting the city-state as a center 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 $35 billion in 2013 from a year earlier, the groups said in today’s statement.
Shanghai is aiming to become a regional bullion-trading hub, luring foreigners with services such as 1,500 metric ton 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.
“We want Shanghai to be an offshore gold-trading hub after consulting with foreign banks,” said Xu. “Bullion flowing into those 1,500-ton vaults can be either imported into China, or en route to be transported to other markets around this region.”
China started the zone in Shanghai this year as a testing ground for liberalizing 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 ($300 billion) in March, according to Standard Chartered Plc estimates as of last month.
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