Gold News

Hong Kong's Yuan Gold Push

Exchange launches new Yuan-denominated gold contract...

HONG KONG saw the launch on Monday of a new service that will allow international investors to use the Yuan to Buy Gold – part of a bid to open a new window for trading the Chinese currency and to strengthen Hong Kong's role as the world's third largest gold trading center, after London and New York, writes Shivom Seth for MineWeb.

According to some estimates, there is some HK$ 600 billion of Chinese currency sitting idle on deposit in the city's banks. Reports indicate that Yuan deposits in Hong Kong surged to 609 billion Yuan in August, accounting for 10% of total deposits in the city's banking system.

Traders say the main idea in launching the service is to put this idle money to use and to get most of it out of the banks, since investors have few options apart from dim sum bonds (Yuan-denominated bonds issued in Hong Kong). The service will be similar to the margin trading of London gold in Hong Kong, said a banking expert.

Another forex dealer said individual investors can trade in kilobar gold, which is priced at 347,000 Yuan per unit, by paying a deposit as low as 16,000 Yuan. International investors can use the facility to do gold and Yuan arbitrage, he added.

Currently, there are different standards for Gold Bars traded in different markets. For example, Gold Bars for international trading have a minimum fineness of 995.0 or above while most of the gold traded in Asia is in the form of bars of 999.9 fineness. 

Analysts say by offering the service, Hong Kong is set to firmly establish itself as China's offshore financial services center. It also signals China's willingness to gradually raise the profile of the Yuan.

Bankers have hailed the service stating that it opens up a new channel for investors who stand to benefit on two fronts – the yellow metal's potential price gains and the imminent strengthening of the Chinese currency.

The Chinese Gold and Silver Exchange Society launched the gold contract, which has been appropriately named the Renminbi kilobar gold. Another banker said investors could use US Dollars to buy the contract.

On the very first day, reports indicate Yuan gold contracts amounting to a total of 322 kilogram were traded, with the settlement price set at 346.95 Yuan per gram, or US$ 1,693.9 an ounce – a significant premium on US and European prices.

Some forex dealers are of the opinion that the Yuan will become a dominant force in international financial markets over the next three years and rival the Dollar, Euro and yen.

Meantime, China has formalized a rule to allow foreign direct investment (FDI) in the Renminbi legally obtained overseas, as it moves to further internationalize its currency. The scheme aims at promoting trade and investment by expanding cross-border use of the Chinese currency and supporting the development of the Renminbi market in Hong Kong.

Even as it boosts gold trading volumes in the island city, the new service is expected to see a turnover of between 100 million and 300 million Yuan in the immediate future.

With bullion prices jumping 19% this year, reaching a record $1,921.15 an ounce on September 6, traders said the move would further develop Hong Kong as a logistics hub and gold trading center, alongside the gold depository at the Hong Kong International Airport.

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Founded in 1999 as part of the Johannesburg-listed MoneyWeb media group, Mineweb is one of the world's leading sources of mining and metals-investment news, comment and analysis. Managed since 2003 by professional mining engineer Lawrence Williams – formerly of Mining Journal, and with more than 30 years' technical and financial experience in the sector – MineWeb provides thorough, international coverage of the natural resources industry.

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