China Gold Congress in Beijing
The China Gold Congress is currently in full flight in Beijing. The three
day Congress is China’s biggest gold industry event of the year, drawing in
participants from across the Chinese and international gold sectors including
central banks, mining companies, bullion banks and refiners.
The event, co-sponsored by the World Gold Council (WGC) and the China Gold
Association, showcases China’s gold industry and acts as a focus point for
what is now the world’s largest gold market in terms of demand and product
innovation.
Discussions and forums during the event cover everything from reserve
asset management for the official or central banking sector, through to
investment products and mining supply. One of the key themes this year is the
internationalisation of the gold market.
China’s gold market accounts for one third of global demand, and according
to the WGC, is expected to grow another 20% cumulatively from now until the
end of 2017.
In what is still a very centrally planned economy despite many market
related reforms, nearly all reported gold activities in China flow through
the Shanghai Gold Exchange (SGE) in one form or another.
Both the China Gold Association and the Shanghai Gold Exchange were
established with government backing and their growth and success reflect a
very deliberate pro-gold strategy on the part of the Chinese Government.
Even though the China Gold Association is a non-for-profit member
association, it still primarily acts as a conduit and coordination group
between the government and the gold producers.
The Shanghai Gold Exchange is the government’s second central hub in
China’s gold market.
SGE approved refiners take in production from China’s fragmented gold
mining industry and in imports from Hong Kong and other countries.
The gold then flows through the Exchange after which SGE deliveries flow
out to the banking sector, the official government sector, and additionally
to the jewellery and technology industries.
The development of the Shanghai Futures Exchange also provides an
additional venue for hedging and gold price discovery.
In China gold is money and is accepted as such by the general population.
There really does not seem to be a debate about this in Chinese government
circles, and another part of the government’s strategy has been to advocate
the increased innovative usage of gold by the Chinese banking sector.
This is quite a simple strategy for the government to implement since the
four big Chinese commercial banks and many other Chinese banks are
state-controlled.
Gold is now used widely in the banking sector in structured products, as
gold collateral, and in gold leasing. The presence of the Chinese bullion
banks in the market via the Shanghai Gold Exchange (SGE) provides the
necessary liquidity that is turning the Exchange into a world player on the
global gold market.
For example, the large Chinese banks such as Industrial and Commercial
Bank of China (ICBC), Bank of China and Agricultural bank of China all offer
gold accumulation plans to the investing public and the WGC estimates that
these products currently represent between 100 and 200 tonnes of gold. The
large banks are also active in gold trading on a proprietary basis via the
SGE.
Earlier this year, ICBC via its purchase of some of Standard Bank of South
Africa’s assets had been rumoured to be interested in buying a seat on the London
gold fixing panel when Deutsche Bank left the panel, but a buyer of this seat
never materialised.
ICBC is not yet a market making member of the London Bullion Market
Association (LBMA), which would be a prerequisite to becoming part of the
gold fixing panel, but given that the Chinese gold market is beginning to
overtake that of London in terms of physical flows and probably price
formation, there may not be a need for ICBC to bother being such an active
participant in the London market as gold business continues to migrate to the
East.
The Chinese government is also responsible for granting gold import
licenses to international bullion banks and has supported the establishment
of the Shanghai free trade zone where a gold trading platform has been set up
for international banks and trading houses.
In fact, in an announcement that coincides with the China Gold Congress
today, the Shanghai Gold Exchange just announced that it is launching an
internationally tradable yuan denominated physical gold contracts to be
traded in the free trade zone for the popular retail 1kg gold bar, the Good
Delivery 12.5kg (400 oz) bar popular with central banks, and a smaller 100
gram bar contract.
The US based CME Group that runs the Comex gold futures exchange also
appears to have used this week’s China Gold Congress to announce the launch
of their competitor product in the form of a 1kg gold contract to be traded
in Hong Kong.
With increased regulatory scrutiny on the London gold and silver fixings
and what looks like a defensive attempt by the LBMA in London to protect
their proprietary gold and silver price discovery auctions via the recently
introduced CME/Thomson platform for silver and probably soon to be introduced
similar CME platform for gold, it will be interesting to see how the Chinese
government’s pro-gold strategy pans out.
We may soon see global gold hub wars between London and New York on the
one hand and the increasingly powerful eastern hubs of Singapore, Shanghai
and Beijing on the other.
MARKET UPDATE
Today’s AM fix was USD 1,247.00, EUR 964.20 and GBP 767.53 per ounce.
Yesterday’s AM fix was USD 1,254.25, EUR 968.46 and GBP 779.91 per
ounce.
Gold fell $6.50 or 0.52% to $1,250.00 per ounce and silver slipped $0.11
or 0.58% to $18.98 per ounce yesterday.
Gold in Euros - 2 Years (Thomson Reuters)
The gold price traded in a narrow range overnight in Asia, ending trading
in Singapore at $1,247. Further weakness in London trading saw the price slip
marginally to $1,240 which is considered a relatively strong support level.
Gold is down 0.72% compared to yesterday’s New York closing price.
In London trading today silver weakened further to $18.70 and is 1.63%
lower relative to yesterday’s midday London fixing.
Platinum weakened again today by 0.58% to $1,377 while profit taking in
palladium continued as it fell 0.95% to $848.
Receive our award winning research here
