Singapore, Dubai and Shanghai stake a claim in the eastward march of the gold trade
New gold trade initiatives are planned in Singapore, Dubai and Shanghai this year as the trading community looks to cash in on a new appetite for the yellow metal in eastern markets. Singapore and Dubai plan to introduce a physical gold contract this year, while Shanghai will start international bullion trading. In the process this will establish new price benchmarks in eastern markets that have become increasingly important since the metal’s price peaked almost three years ago.
Bloomberg reported that Singapore’s kilobar contract for 25 kilograms of 99.99 percent purity may begin as soon as September, according to a statement from Singapore Exchange, World Gold Council, the government’s trade-promotion body and the Singapore Bullion Market Association at an industry conference. The Shanghai Gold Exchange is to start its contract priced and settled in yuan in Q3, chairman Xu Luode told the same event. Last week Dubai Gold and Commodities Exchange CEO Gary Anderson said his organization planned to launch a spot gold contract in two or three months.
Dubai is already ahead of the two Asian hub cities with an estimated 40 per cent of the world’s physical gold trade last year worth around $75 billion. A spot contract would be welcomed by local jewellers and traders.
However, Singapore almost doubled its physical gold trade to $35 billion in 2013. Shanghai also wants to become a regional bullion-trading hub with services such as 1,500 metric ton storage vaults and access into the world’s largest physical-gold market.
The flow of bullion from west to east may last for 20 years, said Zhang Bingnan, vice chairman and general-secretary of the China Gold Association, noting that here are not as many investment vehicles in the east compared with the west, so as incomes rise bullion demand will continue. From a long-term investment perspective this additional demand and the relatively restricted supply of gold is going to be positive for prices. It has only been the competition from overheating equity markets in the west that has kept a lid on bullion prices recently which should have moved higher on the worsening inflation outlook.
Meanwhile Asian investors have taken advantage of bargain prices for gold though they are now banned from exporting it back to the West. Where is the gold going to come from in the West if demand takes of again?