Gold connect linking Shenzhen and Hong Kong to launch Friday

PUBLISHED : Wednesday, 01 November, 2017, 11:45am
UPDATED : Wednesday, 01 November, 2017, 11:13pm

A new gold connect scheme will be launched on Friday to link up the Hong Kong and Shenzhen gold markets, giving a boost to cross border bullion trading and the ongoing internationalisation of the yuan, according to the local gold bourse head.

The Shenzhen-Hong Kong gold connect will be the second cross border trading scheme after the Hong Kong and Shanghai gold markets were linked in 2015, according to Haywood Cheung Tak-hay, president of the Chinese Gold&Silver Exchange Society.

The Shenzhen and Hong Kong gold connect has 70 Hong Kong gold trading firms taking part, compared to 30 in the Shanghai-Hong Kong connect. The Shanghai-Hong Kong gold connect only allows Hong Kong investors to trade the Shanghai gold exchange, while the Shenzhen leg only allows mainlanders to trade gold in Hong Kong.

Meanwhile, the stock connect that linked up the Shanghai and Hong Kong stock markets in 2014, and was extended to include Shenzhen in 2016, allow both northbound and southbound trading.

Hong Kong gold traders kick off cross-border connect in Shanghai

Chief Executive Carrie Lam Cheng Yuet-ngor will officiate a ceremony in Hong Kong for the new cross border gold trading scheme on Friday.

Under the scheme, mainland investors can trade the CNH (offshore yuan) 1 kilo gold bar in Hong Kong via one of the 70 Chinese Gold&Silver Exchange Society members who have set up their subsidiaries in Qianhai – Shenzhen’s special economic zone designed to facilitate development of the financial services that compliment Hong Kong.

ICBC Macau branch or OCBC Bank in Hong Kong will handle cash settlement and physical gold delivery in Hong Kong.

Mainland customers who want physical bullion delivery in Qianhai will need to wait until April when the local gold exchange’s vault is completed.

“We believe many end users who are among the roughly 2,000 jewellery manufacturers in Shenzhen would like to use this cross border gold trading facility. They have to import physical gold from Hong Kong now. If they can trade the gold in Hong Kong and receive the physical gold from Qianhai, it would save them time and money,” Cheung said.

“The Shenzhen-Hong Kong gold connect will mark a closer link between Hong Kong and Qianhai to capture the Greater Bay Area economic growth,” he said.

The next step is to build a similar connect scheme between the Hong Kong gold bourse and the gold markets in Dubai, Myanmar, and Singapore next year, Cheung said.

“Dubai, Myanmar and Singapore are on the route of China’s Belt and Road Initiative which also enhance commodities trading and strengthen Hong Kong as a gold trading hub in Asia,” Cheung added.

The belt and road initiative was launched by Beijing in 2013 to improve global connectivity and enhance physical infrastructure through roads and railway links to 65 countries between China and other Asian and European countries.

Hong Kong was one of the world’s largest gold market in the 1980s, but turnover has declined since the early 1990s amid sluggish bullion prices.

More recently, the growing economies in India and China have helped to boost gold trading interest, as the two countries are the world’s largest gold importers.

Hong Kong Exchanges and Clearing in July also introduced two new gold futures products.

HKEX is third time lucky in launching gold futures but trading is starting to slip

Alfred Yeung Ping-kwan, the founding chairman of Glory Sky Group, is among the Hong Kong gold trading firms that will partake in the new connect scheme.

“We have waited for the launch of the Shenzhen and Hong Kong gold connect for a long time as the new cross border trading scheme is set to boost gold turnover in Hong Kong by introducing more mainland investors to trade in Hong Kong,” Yeung said.

Yeung said the gold price has gone up and down substantially this year, which means this is an ideal environment for the new gold scheme to be launched.

“Qianhai is close to Hong Kong which is why we like going there to set up an office to serve the mainlanders to trade in Hong Kong,” Yeung said.

He said the US gold market trades 300,000 contracts a day, each valued at roughly US$1 million.

“ Our market is getting bigger and can attract more international investors. Even if we can only capture some US gold trading to Hong Kong, the volume will be huge,” he said.