China mulls opening door on gold market

Financial authorities in China are considering measures which would make it easier for foreign investors to participate in the country's largely isolated gold derivatives market, a move which would hasten the integration of the local precious metal market with the global market, Xie Duo, general director of the financial market department at the People's Bank of China, said Monday at the annual London Bullion Market Association conference. Xie did not offer a timeline or further details.

Such a plan, if brought to fruition, could also eventually give the country more control over international gold prices, according to experts contacted by the Global Times.

Due to a lack of experience overseeing gold derivatives, financial regulators in China have kept overseas investors at a distance for years, Sun Yonggang, a gold analyst from Everbright Futures, told the Global Times.

But insulating the market has stalled its development and eroded the global influence of Chinese gold futures, said Sun, who added that most contracts for the precious metal in China simply track the movements of their counterparts overseas and are thus poor reflections of actual supply and demand pressures within the domestic market.

As China's gold output and consumption increase, and its gold reserves continue to expand, local authorities need to adopt policies which will give China more control over the commodity's price, according to Li Qi, a gold analyst from Shanghai Cifco Futures.

China is expected to consume 850 tons of gold this year, placing the country in line to become the world's largest gold consumer by 2013, according to statements made by the World Gold Council (WGC) on August 16.

Meanwhile, China's gold output rose 5.89 percent year-on-year to 360.96 tons in 2011, making the country the world's largest gold producer for the fifth consecutive year, according to figures from the China Gold Association.

The US Federal Reserve's third round of quantitative easing dampened the value of the US dollar and cut into the worth of China's dollar-denominated bonds and institutional debt, Li said.

"Under these circumstances, the government is expected to increase its holdings of the safe-haven asset in order to minimize exposure to the depreciating US dollar, so it would be in the country's best interest to have more sway over how much it pays for gold," Li explained.