The
Future of China’s Gold Market:
Further
Internationalisation, Greater Expectations
Albert
Cheng, Managing Director, World Gold Council, Far East
In 2014, China’s gold
market returned to its steady long-term trend after experiencing an exceptional
rate of gold purchasing triggered by extremely low prices in 2013. Although the
global gold trade is still consolidating, the 2014 milestone launch of the International
Board of the Shanghai Gold Exchange was regarded as a significant move in the
construction of the gold market. From the perspective of international
investors, the robust demand for spot gold from China and India should be a
reason for Asia to establish its own benchmark price during the Asian trading
session. Asian market players are also in desperate need of a spot gold fixing
system that is more open and more transparent.
The launch of the International
Board of the Shanghai Gold Exchange (SGE) marks a transformation, not merely in
becoming a part of the global gold trading market, but in creating a new world
model where the SGE can be a leading physical trading centre in a newly
integrated multipolar world. Shanghai will also become the focus of the
gradually emerging “Physical Trading Axis of the East” spanning from Tokyo,
Hong Kong and Singapore to Bangkok.
The Chinese gold market has
grown exponentially in the last 10 years and China is now the largest market
for both gold supply and demand. Moreover, according to our research, the percentage
of gold transactions taking place in Asia increased from 57 percent in 2010 to 61
percent in 2014. In the past ten years, global gold demand increased by 50
percent, and gold demand in Southeast Asia increased by 250 percent. As the growth in the gold market shifts from West to East, the
expansion of strong gold trading hubs in Asia will improve price discovery,
liquidity, transparency and efficiency, all of which will transform the
landscape of the global gold market. As a major market, accounting for 30
percent of global capacity, this will enable China to take its rightful place
in the world gold market. In addition, while a definite timetable has not yet been
determined as to when RMB will have full convertibility in China, the newly
launched International Board of the SGE offers global investors all
RMB-denominated products at the International Board of the SGE, which will no doubt fuel China’s drive
to internationalise the RMB, the first financial product opening for the
global market. In return, RMB-denominated gold products will benefit the local
market by providing gold price discovery and increasing the market efficiency.
2014 was the first year of the
internationalisation of China’s gold market. 2015will be a significant year for
the International Board of the SGE, as it is likely to reach a new stage this
year. The SGE is accelerating its internationalisation process by cooperating
with the World Gold Council and Comex in sharing channels, sales, marketing and
transaction training to highlight just a few. In
2015, the SGE will recruit approximately 50 to 60 new members to improve client
relations at the International Board.
In addition to the International Board of
the SGE, China’s gold market is expected to experience other breakthroughs in
terms of a two-way opening. The Chinese Gold and Silver Exchange Society
recently indicated that the Shanghai-Hong Kong Gold Connect is due to launch in
June of this year. Both parties also agreed that they would leverage the
opportunity presented by the International Board to further enhance cooperation
on the future development and opening up of the China gold market. This could
be a new and innovative operation that not only furthers the process of
internationalising the RMB, but also facilitates the internationalisation of
China’s gold market in terms of traders, capital flows and logistics.
Meanwhile, with
the end of the annual sessions of the National People's Congress and the
National Committee of the Chinese People's Political Consultative Conference,
the SGE has announced its intention and commitment to develop “Shanghai Gold”
in 2015, attempting to construct an Asia Gold price scheme that is equivalent
to the newly launched LBMA Gold Price.
In looking at the Western
market, we see many great opportunities resulting from the “One Belt and One
Road” (OBAOR) strategy, introduced by President Xi Jinping during the NPC and
CPPCC sessions. Mr. Xu Luode, President of the SGE, proposed at the two
sessions that engagement with countries rich in gold reserves along the OBAOR
route, such as Uzbekistan and Kazakhstan, should be leveraged in the areas of
refinery development, client base expansion, new financing services and
RMB-denominated gold trading. To accomplish these objectives, China’s gold
market needs to enhance cooperation with enterprises and individuals along the
OBAOR in the following ways: involving their participation in the SGE platform
to hopefully become SGE clients, encouraging them to develop cross-border gold
leasing services and advancing the use of physical gold and convertible
currency in an RMB-denominated gold market. All efforts are aimed at
strengthening the integration and influence of the RMB-denominated gold market.
On March 14, Britain became the first G7 country to join the Asian
Infrastructure Investment Bank (AIIB)
in Beijing, a new Chinese-led investment bank which will provide a new
financing channel for developing nations in the Asian-Pacific region. Following the decision, France, Germany and Italy also announced
their participation in the AIIB on March 17, and Switzerland is also reportedly
confirming its participation in the bank. All of these actions are indications
of a stronger financial bond between the West and the East, building a firm
foundation for the RMB to become a world reserve currency. China is becoming an
increasingly significant member of both the global gold market and the
international financial market.
Therefore, the global gold industry will surely be positively impacted
by the dynamic development of China’s gold market.
Disclaimer:
Views are personal and not the views of the publisher.