Sunday, October 16, 2011

Hong Kong trading gold

Hong Kong's Chinese Gold and Silver exchange has officially started trading today. Gold denominated in renminbi can be used by Chinese to trade in and even redeem gold on the exchange.

Haywood Cheung, the president of the 101-year-old bullion exchange, said the so-called Renminbi Kilobar Gold contracts could boost trading volumes by up to 30%, or HK$40 billion a day, during the next six months. Growth has already been strong this year, with average daily electronic transactions reaching HK$136 billion after a full-year average of just HK$31 billion in 2010.

"By attracting both local and international investors, the Renminbi Kilobar Gold is a significant step towards internationalising the renminbi," said Cheung. "It also consolidates Hong Kong's position as an offshore renminbi centre by providing investors with a new alternative in leveraged trading of renminbi."

Cheung told Finance Asia that the ability to leverage by converting renminbi into new gold contracts will be able to gear up their exposure to the currency and put it to work.

Cheung argues that gold is half-way through a 10 to 15-year bull cycle and that renminbi will appreciate by 5% to 6% a year before it becomes freely convertible. A much better proposition than sluggish bank deposit returns.

As Shanghai currently hosts online trading of gold contracts and a new gold exchange is set to start up in China in June next year, this will only increase healthy competition and contribute to a healthy increase in the gold price.
It is reported that Chinese investors have increased their share of trading on the CGSE to 50% to 60%, up from around 30% at the start of the year.

As both exchanges have the same standards of purity it is possible that more cooperation between the exchanges is possible in the future. I. "When they open up, I think we can be very good associates," said Cheung.

According to Finance Asia, "Trading of the Renminbi Kilobar Gold contracts will start with 25 of the exchange's member firms from various sectors, including banking and gold dealing, with Wing Hang Bank and Bank of China acting as settlement banks. The spot gold contracts are traded under the revamped electronic trading system established by the CGSE and quoted and settled in renminbi. Starting from today, members can take physical delivery of the gold upon settlement."

Seems millions more Chinese will be buying gold in the coming months and years.

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