HKEx launches gold futures
By Citywire Asia Staff 10 Jul, 2017 at 11:06
The Hong Kong Stock Exchange has launched gold futures contracts traded in yuan and US dollars, as it tries to capture demand for precious metals amongst Asian investors.
Although it sits on the edge of the world’s largest gold market, Hong Kong is light years behind London and New York as a centre for trading in the spot metal or its derivatives.
Monday’s launch is the third time that the exchange has attempted to break into gold futures. HKEx’s last product was launched into the teeth of the financial crisis in October 2008, and was withdrawn in March 2015. A contract offered in the 1980s and 90s dwindled due to lack of interest.
‘Currently the price of gold is set through the OTC market in London and futures trading in New York, both of which are many time zones away from the largest consumer of gold in the world: China. Asia is severely under-represented when it comes to influencing gold pricing,’ HKEx CEO Charles Li wrote in a blog on the exchange’s website.
Hong Kong’s physical gold trading market, time zone and proximity to Mainland China mean that the city is well-placed to become a gold trading hub, Li wrote.
The London Metal Exchange, which HKEx bought in 2012, also launched a new gold contract on Monday, its first in more than 30 years.
HKEx’s new contract differs from its previous attempts, in that it now offers yuan settlement and is physically-backed.
Although there is some logic to the idea that the gold market needs local pricing benchmarks that are more reflective of regional market dynamics. Demand for gold has shifted eastwards in line with growing wealth in India and China.
The CME launched gold futures in Hong Kong in January 2015, but volume has been uninspiring, while contracts in Singapore and Shanghai have also struggled.
With that experience in mind, Hong Kong faces an uphill struggle, according to Ronan Manly, precious metals analyst at Singapore-based bullion dealer BullionStar.
‘I do think it will have a hard time succeeding,’ Manly said. Gold contracts in the region typically follow a familiar path: ‘They have a lot of marketing, a big launch, and then nobody ends up using them,’ he said.