CME to launch gold futures in Hong Kong by the end of this year

The CME Group will launch a number of new gold futures with the option of physical delivery in Hong Kong later this year. With these new contracts, the CME is responding to the growing Asian demand for instruments in the Gold price to respond to it.

According to Reuters the new contracts relate to 1 kilo of gold. With this contract, a price formation mechanism for gold will also be established for the Asian market. The demand for these types of alternatives is increasing, as the center of gravity of the gold market has increasingly moved to Asia in recent years.

"Asia needs more tools to hedge the price risk of gold and to determine the price of gold", said Harriet Hunnable of the CME Group today at a conference in Beijing.

Asia

Asia accounted for 63% of the global demand for jewellery, gold bars and gold coins in 2013. According to the World Gold Council, Asia's market share in the global gold market has increased by 57% since 2010. Nevertheless, the daily reference price for gold is still set by four banks in London.

According to the CME, the new gold contract provides more transparent pricing for the Asian gold market. It also offers investors the opportunity to apply artbitrage to various gold contracts.

Shanghai Gold Exchange

China's Shanghai Gold Exchange (SGE) also has plans to launch an international version of its gold futures. These are traded via a trading platform in the Shanghai Free Trade Zone. These contracts should be tradable from 29 September.

The gold contracts that will be launched at the SGE later this month will also be closely followed by the financial markets. They are the first Chinese gold contracts that are also accessible to foreign investors.

The contracts that the Shanghai Gold Exchange will roll out later this month will come in 100 gram, 1 kilo and 12.5 kilo variants. Physical extradition is possible for all these contracts. With a 100 gram contract, the gold market is very accessible for small players, because on the Comex the volume for a gold contract is 100 troy ounces (3.1 kilos).

"Our gold market is still very young. We are the largest gold market in the world, but our influence on the international market is still very small.", Xu Lode declared at the same conference in Beijing.

Gold price in yuan

It is striking that the SGE's contracts are denominated in Chinese yuan. It is no longer necessary to convert to dollars in order to invest in gold contracts. This allows for direct price formation of gold in yuan.

The first banks to join China's new international gold exchange are Goldman Sachs, ANZ Banking Group and Standard Chartered. Metalor and Hereaus have also already signed up and HSBC, Bank of Nova Scotia, Standard Bank and JP Morgan are also said to be interested in participating in the international gold exchange in China.