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Last week we wrote on Hollandgold that the new Shanghai International Gold Exchange would not open its doors until 29 September, but that information quickly turned out to be outdated. To the surprise of many, the gold exchange was opened on Thursday 18 September. Through this exchange, which is located in the Shanghai Free Trade Zone, foreign investors will for the first time gain direct access to the Chinese gold market, which has been the largest market for gold in the world since 2013.
Banks from forty different countries can trade gold on the Chinese trading platform, which is intended to become a kind of counterpart to the American Comex. The gold contracts have a size of 100 grams, 1 kilogram and 12.5 kilograms and are settled in Chinese yuan. This means that the role of the dollar will also become less dominant in the international gold trade.
"The launch of gold contracts in Asia will strengthen China's influence and improve price discovery", central bank governor Zhou Xiaochuan said during the launch of the stock exchange in Shanghai. "This will also boost the development of the Shanghai Free Trade Area. It is an important milestone in opening up China's financial markets."
About two-thirds of all physical gold trading already takes place in Asia, but the price of gold is still determined by the West. As a result, the Gold price in China sometimes deviated considerably from the international gold price. This year, the gold price in China has been $31 per troy ounce above and $42 per troy ounce below the gold price in London.
Goldman Sachs and UBS are the first international parties to trade on the Chinese gold exchange. But the Australia & New Zealand Banking Group, HSBC Holdings, Standard Chartered, JPMorgan Chase & Co., Deutsche Bank, Standard Bank Group and the Bank of Nova Scotia will also play a role, according to a statement from the Shanghai Gold Exchange. Smelters such as Metalor and Heraeus are also among the first group to be allowed to trade on the international Shanghai Gold Exchange.
Citigroup Inc., Societe Generale SA, Barrick Gold Corp., Newmont Gold Co. and the Perth Mint are among a group of nearly thirty companies that will be granted second-round entry to the Shanghai International Gold Exchange.
What is striking is that many Western banks are also embracing the Chinese gold market. This is not surprising, when you consider that the Chinese yuan is gaining an increasing market share in world trade. Banks that have a large Chinese yuan can hedge their risk by investing directly in this currency. buy gold.
According to Jeremy East, precious metals trader for Standard Chartered, not only the price formation of gold, but also that of other commodities, will take place in Chinese yuan over time. "This has the potential to have a big impact. Consider, for example, a gold producer who sells his product in China. It will then be paid in Chinese yuan instead of US dollars."
At the moment, gold is already traded in Chinese yuan in Hong Kong. Although the daily trading volume there rose from 11,282 to 40,494 kilos of gold in one year, it is still only a fraction with London's gold market. According to the LBMA, 19.6 million troy ounces (630,140 kilos) of gold are traded there every day.
