CGSE’s new gold appetite
Building on its success of recent years, Chinese Gold and Silver Exchange (CGSE) has big plans for further expansion, with a particular focus on attracting new business from Southeast Asia.
The region is seen as offering significant opportunities, thanks to its strong economic fundamentals and far-sighted approach to value investing. And with China’s ambitious Belt and Road initiative providing extra impetus, now is the perfect time to implement growth strategies and capitalise on any first-mover advantage.
CGSE already operates a gold trading hub in South China’s Greater Bay Area, which represents a brand-new business model and provides a fast, efficient and convenient entry point for industry players and retail investors.
With its future headquarters in Shenzhen’s Qianhai Free Trade Zone and a trading platform in Hong Kong, the hub includes a trading hall, a clearing and settlement office, an assay lab, a logistics office, a bonded warehouse and customs facilities, and even safety deposit boxes.
The plan now is to offer these services to more customers in Southeast Asia, thereby spurring business across the region.
“The aim of the initiative, which we see as groundbreaking, is to bring together all parties in the global bullion community,” says Haywood Cheung, President of Chinese Gold & Silver Exchange, who spoke recently to an industry audience. “By doing so, it should be possible to expand markets, cut costs, and create win-win successes for all those involved. It can be a game-changer for the way we do business.”
With services that include settlement, gold lending and financing, transaction banking, and a central clearing house, the regional hub provides an efficient, well-regulated trading platform and easy connections with other markets and businesses around the world.
“Looking at the big picture, we know that China’s Belt and Road initiative is already having an impact,” Cheung says. “We foresee that it will help to unlock potential and fuel economies. The nations concerned can realistically expect to achieve greater material wealth and, as a result, their people and governments will have greater demand for various types of investment in gold.”
Cheung adds that CGSE has a proud history, having operated as a respected gold exchange for the past 108 years. Some of its more recent corporate milestones include the launch of the world’s first yuan-denominated kilo bars in 2001; establishing operations in Shenzhen’s Qianhai Free Trade Zone in 2015; and rolling out the “Shenzhen-Hong Kong Gold Connect” scheme in November last year.
The latter also saw the first trade of CGSE’s “QH Gold” product, which served as a tool in raising the curtain on what was heralded as a new era for gold trading in Asia. Besides that, the CNH 9999 kilo bars are a way to invest in offshore renminbi and gold simultaneously. Because of that, the product is also expected to play an important role in further strengthening the internationalisation of the renminbi in the months and years ahead.
All this goes to show that CGSE has the experience and scope to lead the latest project, which will open new doors and help traders gain a foothold in developing markets.
“With the regional gold hub, we aim to bring supply, demand and ancillary services together under the same roof,” Cheung says. “This platform will make the flow of gold more efficient for everyone including refiners, traders and banks, thereby promoting business and reducing operational costs.”
He explains that one immediate objective is to set stringent criteria to create a gold standard that is trusted across Asia and allows for mutual accreditation. Another is to work with accredited vaults overseas, so that physical gold can be delivered to anywhere in the world once a transaction is completed on a CGSE trading platform.
A third objective is to provide clear bank records for any transactions, so as to increase transparency and security for traders and underpin customers’ trust in the system. And a fourth is to impose rules which require “full payment and delivery” for each transaction in order to inspire confidence and give peace of mind.
“More specifically, a key attraction of the Qianhai bonded warehouse is that trading activities will fall under international law and arbitration, making it convenient for access to and withdrawals of gold,” Cheung says. “That is an obvious advantage for countries and multinationals which want to keep their reserves there.”
The broad market expectation is that demand for gold will only increase as China pushes ahead with its Belt and Road initiative and other nations start to benefit accordingly.
“As these countries become more affluent, they will need to buy gold for their reserves to back their currencies and economies,” Cheung says. “For that reason, we are in talks with countries along the Belt and Road corridor, and our progress in building the Asian gold hub is gaining pace.”