Shanghai launches its gold exchange

Gold ornaments sold in Suzhou, Jiangsu province. China may launch its gold exchange in Shanghai on Thursday, the first yuan-denominated gold trading board that will be open to overseas investors. WANG JIANZHONG/CHINA DAILY

New contracts to trade the metal should lure more foreign investors

The Shanghai Gold Exchange started trading contracts in the China (Shanghai) Pilot Free Trade Zone on Thursday, enabling foreign investors to participate in China's rapidly growing bullion trading market.

The move is also expected to boost China's yellow metal pricing power and also gave a fillip to its efforts to promote the use of renminbi globally.

Premier Li Keqiang, who visited the FTZ on Thursday, said he has been closely following the progress of the international bourse and commended the SGE for launching trading. Li said more efforts are needed to promote the cross-border use of the yuan and also take stock of the various measures being undertaken at the FTZ.

The head of the People's Bank of China, the central bank, Zhou Xiaochuan, and Shanghai Mayor Yang Xiong jointly pushed the button that marked the launch of the first trade. The first matched deal between SGE's international members was completed a minute after the launch, and enabled China's gold market to be linked to the international market.

The launch of SGE's international bourse is widely seen as the country's effort to open its financial market to more international investors.

The SGE yuan-denominated contracts that are traded at the FTZ will be linked to China's domestic spot market and be available for trading for both domestic and international investors. All the contracts traded at the SGE's international board within the FTZ will be physically backed and will be transacted in the vault within the FTZ.

Nicknamed as "Shanghai Gold", the new contracts will add to current gold-trading varieties with new standards and trading rules.

Before the launch of Shanghai Gold, contracts with global influences included London Gold, physical gold contracts traded at London Metal Exchange, and New York Gold, futures gold contracts traded at the New York Commodity Exchange.

The new contracts of Shanghai Gold are for bullion of 99.99 percent purity weighing 100 grams and 1 kilogram, and bars of 99.95 percent purity weighing 12.5 kilograms, according to SGE's official data.

Overseas investors will be allowed to trade eight contracts that have already been traded in the domestic board at the same price and time and under the same rules with cash as the only settlement, and transactions done in the FTZ vaults.

Market insiders and experts said Shanghai Gold may elevate China's position in the international gold market by helping the world's largest bullion buyer and gold consumer to establish a benchmark price in Asia.

Currently, pricing power of the precious metal lies largely with the London Bullion Market Association.

SGE's Chairman of the Board Xu Luode said earlier this year that China as the world's biggest consumer and producer of gold should have more pricing power to match the role it plays in the global gold market.

"We should have gold price fixing done in China itself. We need to build China's influence in the global gold market," said Xu.