Plunge in gold price puts a bad idea out of its misery
After volumes in the Hong Kong Mercantile Exchange's gold futures contracts collapsed, cessation of trading was a foregone conclusion
It looks as if the 20 per cent fall in the price of gold over the past six months has put the Hong Kong Mercantile Exchange out of its misery.
As speculators fled the precious metals markets, volumes in the exchange's two gold and silver futures contracts collapsed.
Last month, HKMEx's 32-ounce gold future turned over just 12,866 contracts. Based on the average gold price for the month, that means trading in the exchange's flagship contract was worth just US$614 million.
In contrast, in the same month, New York's Comex exchange traded 5.2 million 100-ounce contracts worth some US$779 billion.
In the first weeks of May, total volumes on HKMEx fell to just 939 lots (see the first chart). With the exchange earning fees of 50 to 75 US cents per lot, there was no way it could remain in business. Trading ceased on Friday.
Exchange chairman Barry Cheung is keeping a brave face on things, saying he plans to raise fresh capital and return with yuan-denominated futures on industrial metals.