Gold futures relaunch gets off to slow but steady start

PUBLISHED : Tuesday, 21 October, 2008, 12:00am
UPDATED : Tuesday, 21 October, 2008, 12:00am

Uncertain economic outlook expected to bolster trading

Hong Kong Exchanges and Clearing relaunched gold futures yesterday with 480 contracts changing hands, which analysts said was modest but acceptable as a fresh start.

The move comes as the global financial crisis deepens and commodities prices continue to decline.

Traders expected trading in gold futures to be thin in the early stages and dominated by institutional investors.

'We are pleased with the smooth roll-out of gold futures contracts, which expand the HKEx's derivatives market product range amid growing investor interest in exchange-traded gold products,' said HKEx chief executive Paul Chow Man-yiu.

Gold for October delivery, the most-traded future, had turnover of 233 contracts. It closed at US$803.50 an ounce. Each contract represents 100 ounces and is denominated in US dollars.

Turnover of November gold was 90 contracts. The future closed at US$805.50. December gold, which saw a turnover of 157 contracts, closed at US$806.50.

'Trading was moderate and acceptable for the first day, as every new product needs time to develop,' said Horace Kwan Pak-leung, a deputy chief operating officer of Celestial Commodities, a gold futures liquidity provider.

Gold futures were first introduced on the Hong Kong exchange in 1980, but trading was suspended in 1998 because of thin turnover after investors shifted to over-the-counter channels such as banks and brokerages.

HKEx chairman Ronald Arculli said this was an ideal time to launch gold futures trading in Hong Kong again because of interest in the precious metal and increasing price volatility.

The annualised 30-day volatility of gold has jumped to 50 per cent in August from 10 per cent in August 2007.

Trading in gold futures would enable investors to hedge against unexpected moves in the international market, Mr Arculli said at the launch ceremony.

Gold, often considered a safe-haven investment in uncertain economic times, has almost doubled in price in the past five years.

The metal dropped about 9 per cent last week and hit a one-week low of US$771.30 an ounce yesterday as a rally in the US dollar tarnished some of the metal's attraction as an alternative investment.

Hong Kong gold closed yesterday at US$802-US$803 an ounce, down from US$810-US$811 on Friday. Gold peaked at US$1,030.80 in March.

The relaunch of gold futures underscored the exchange's ambition to expand its range of products and services in commodities and to develop Hong Kong as a hub for gold trading.

'The contracts broaden the HKEx's derivative market product range in the commodities arena. It also complements trading in the cash market, where we have five gold derivative warrants and one gold exchange-traded fund,' Mr Arculli said.