Monday, August 14, 2017

Hong Kong and India set to open two new gold markets in which the RMB could accelerate their internationalization

While we at The Daily Economist would never recommend using futures or any other paper derivatives to claim a stake in the gold market, an interesting event is now taking place in the East where two major economies are planning to open their own gold futures trading as early as the end of this month.

Hong Kong Mercantile Exchange:


Back in May, Hong Kong Exchanges and Clearing announced plans to launch gold futures contracts. This is not the first time Hong Kong has tried to muscle into the market for gold derivatives. Even though China years ago overtook everyone else to become both the world’s biggest miner and biggest consumer of gold, international trading in the precious metal remains centred on London and New York.  
All this poses a problem for Beijing’s grand plan to promote yuan as an international reserve currency. Put simply, no one wants to hold the currency because there are no safe assets denominated in yuan for them to buy as reliable and secure stores of value. Deposits are liable to depreciate. So are bonds. And China’s stock markets are altogether too volatile and dangerous. As a result, over the last two years the internationalisation of yuan has gone into reverse. That is why HKEx’s proposed yuan-denominated gold contract may prove interesting: it will allow offshore holders of the Chinese currency to park their money in gold, either though exposure to synthetic derivative contracts, or, if they choose, by taking physical delivery of the metal. – South China Morning Post
India International Exchange:

BSE-promoted India International Exchange (India INX) will launch trading in gold options from August 30, a move which will allow investors an opportunity to hedge their risk without worrying about daily market volatility. 
India INX, which has received regulator Sebi’s nod to launch the product, has estimated that gold options, along with other gold contracts, would clock a daily average turnover of USD 35 million on the exchange’s platform.
Recently, domestic commodity exchange MCX also said it has received Sebi’s approval to commence trading in gold options contracts. The bourse is likely to launch the product by August-end.  
The exchange, which operates for 22 hours a day, allows international investors and Non-Residents Indians to trade in various asset classes including equities and derivatives from anywhere across the globe. – Silver Doctors
Both of these new markets will open up trading to international investors, and are both gold delivery markets as opposed to the LBMA and Comex which simply act as a derivative mechanism to control the price of gold, rather than to provide a free market for it.  And the more options investors have to buy physical gold and hedge their trades with futures contracts outside the West, the quicker London and New York will become irrelevant.

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