Hong Kong Stock Exchange

HKEX set to launch ‘physically delivered’ gold futures in Hong Kong and London

Chinese Gold and Silver Exchange Society, an organisation of gold traders dating back to 1910, to cooperate on product promotion and storage vaults

PUBLISHED : Thursday, 29 June, 2017, 4:24pm
UPDATED : Thursday, 29 June, 2017, 4:26pm

Hong Kong Exchanges and Clearing (HKEX) is launching its planned offshore renminbi and US dollar gold futures contracts in Hong Kong on July 10 – the first pair of commodity futures that can be physically delivered in the city.

It’s the third attempt by the local bourse to launch gold futures contracts after two previous plans failed to attract interest. But officials said they are confident this time round the futures will succeed because as will require physical delivery of the precious metal.

Previously settlement was made in cash, and a debit or credit of the precious metal was issued when the contract expired.

“Hong Kong needs to establish a gold price benchmark which was previously absent even though the city has comprehensive capabilities for gold trading, warehouse and logistics,” said Charles Li, chief executive of HKEX.

“Our gold futures will offer physical market users hedging opportunities and attract financial players, supplementing Hong Kong’s physical trading and helping establish a regional price benchmark.”

HKEX’s London’s subsidiary London Metal Exchange will also launch a gold futures contract the same day. The Hong Kong gold futures can be denominated either in US dollars or yuan, enabling investors to arbitrage between the precious metal and the currencies, and further strengthen Hong Kong as offshore yuan centre, Li added.

The signing signifies a strategic partnership which aims to build a major gold and commodities trading centre in Asia Pacific
Haywood Cheung, president of the 107-year-old Chinese Gold and Silver Exchange Society

HKEX and The Chinese Gold and Silver Exchange Society (CGSE), a Hong Kong organisation of gold traders established in 1910, signed a memorandum of understanding on Thursday to help with details involved in the contracts, such as storage of the actual metal.

“The signing signifies a strategic partnership which aims to build a major gold and commodities trading centre in Asia Pacific,” said Haywood Cheung, the 107-year-old society’s president.

Cheung said their joint plans include how best to become involved together in China’s economic development plan, the “Belt and Road Initiative”, and cooperation on matters ranging from product promotion to storage vaults.

The CGSE will help broaden investment channels by supporting futures contracts with physical settlement from its warehouse in neighbouring Qianhai New District.

The last attempt by HKEX to launch a gold futures contract was during the financial crisis in October 2008, but it was scrapped in March 2015 after little interest and no turnover at all for the whole of 2014.

The Futures Exchange, now a unit of HKEX, first traded gold futures in the 1980s but it was abolished in the mid-90s, again due to lack of interest.

Additional reporting from Yu Yifan