SINGAPORE (Reuters) - China is marketing its yuan gold price to foreign exchanges and Singapore is looking at bringing London’s gold benchmark to users in Asia, in moves meant to boost the region’s exposure and influence in the global bullion market.
Home to the world’s biggest buyers China and India, Asia’s importance has been on the rise as the key source of demand for gold, but the region’s bullion traders are often exposed to intraday price volatility and foreign exchange risks with U.S. dollar-based benchmark prices being set out of London.
Shanghai Gold Exchange, the world’s biggest physical bullion exchange, will collaborate with foreign exchanges and allow them to use its yuan-denominated gold price in developing derivatives products, Chairman Jiao Jinpu told an industry conference.
The exchange launched a yuan-denominated gold benchmark in April as part of China’s bid to exert more control over pricing of the metal and increase its influence in the global market.
The latest move is an aggressive step by China - the world’s top consumer, producer and importer of gold - to market its pricing mechanism and aims for a bigger say in an industry long dominated by the London spot price.
“We would collaborate with various exchanges and authorise these external exchanges to start business outside China to use it as a basis for development of derivatives products,” Jiao told an industry conference through an interpreter.
Shanghai’s first deal will be signed with the Dubai Gold & Commodities Exchange next week, Jiao told reporters, adding that he expects more cooperation ahead.
“Some of the exchanges are approaching us,” he said. “Collaboration is a win-win for all. In Latin America and Africa I wish to offer more collaboration with them.”
China has baulked at depending on a dollar price for gold in international transactions and believes its market weight should entitle it to set the price for the precious metal.
Also, the Singapore Bullion Market Association (SBMA) is working with the London Bullion Market Association (LBMA) and Intercontinental Exchange Benchmark Administration to study the possibility of extending LBMA’s gold pricing to Singapore hours.
“We hope to make a reputable gold benchmark mechanism in London available to Asian users,” SBMA’s chief executive, Albert Cheng, told Reuters.
Cheng said a feasibility study is being carried out, and “if there’s enough interest, the IBA will consider launching it early next year.”
The renewed pricing push in Asia come as the $5-trillion-a-year London gold market undergoes reforms to boost transparency. The London gold fix, previously set via a teleconference among banks and facing allegations of manipulation, was replaced in 2015 by electronic auctions, which take place twice daily.
The LBMA last week named Cinnober subsidiary Boat as the service provider for its new trade reporting platform.
Intercontinental Exchange on Monday said it would launch a London gold daily futures contract in February 2017, heating up the race to gain a bigger chunk of the market.
In August, the London Metal Exchange said it was planning to launch spot and futures contracts for gold and silver in the first half of 2017.
“It’s interesting to me there’s so much interest in the London market,” said Miguel Vias, head of precious metals at CME Group, the world’s biggest exchange operator. “I think its emblematic of the fact that it’s under stress. There’s a lot of concern about how it’s going to look in the future.”
Reporting by Manolo Serapio Jr. and Koustav Samanta; Editing by Tom Hogue