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October 18, 2016

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Push to increase Asian voice in gold pricing

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 US 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 raise its influence in the global market.

The latest move by China — the world’s top consumer, producer and importer of gold — aims for a bigger say in an industry long dominated by the London spot price.

“We would collaborate with various exchanges and authorize these external exchanges to start business outside China to use it as a basis for development of derivatives products,” Jiao said.

Shanghai’s first deal will be signed with the Dubai Gold & Commodities Exchange next week, Jiao said, 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 balked 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 is working with the London Bullion Market Association (LBMA) and Intercontinental Exchange Benchmark Administration (IBA) 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 said.

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 comes as the US$5-trillion-a-year London gold market 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.


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