SGE to start fixing gold price denominated in yuan

A saleswoman sorts gold items at a jewelry shop in Lianyungang, Jiangsu province. China is the world's biggest producer and second-largest consumer of gold. (Photo: Si Wei/For China Daily)

The Shanghai Gold Exchange will try to start offering the renminbi-denominated gold-fixing price this year, as an alternative to the dollar-denominated gold-fixing in London, a top bourse official said on Wednesday.

SGE head Xu Luode said that the bourse has been researching the pros and cons of the yuan-denominated gold-fixing price, and will strive to launch it by the end of this year as market conditions have laid "foundations" for the new price-fixing.

"The yuan-denominated price for gold will not compete with the current dollar-denominated price. Instead, it will be complementary, offer one more choice, and the yuan-denominated and US dollar-denominated systems can be cross-referenced," said Xu, adding that the yuan-denominated benchmark price will only make gold prices more reasonable. It will also reflect the existing supply and demand situation, as China accounts for about 40 percent of the global physical gold demand.

China is also the world's biggest producer and second-largest consumer of gold. Currently global gold prices are decided by the century-old London fix, which has been under scrutiny because of alleged price-manipulation and will soon be replaced by a new mechanism involving more participants.

Analysts said the move, if successful, will help popularize global use of the renminbi, which has already become world's fifth most-used settlement currency and reserve currency for some banks.

"If the yuan-gold-fixing in Shanghai is launched, it can use the model of the international board of the SGE within Shanghai's Free Trade Zone, which allows foreign investors and banks to settle and trade in offshore yuan, while domestic ones to use onshore yuan as the currency is yet to be fully convertible," said Yang Fei, a gold investment analyst with See-wonder Financial Information Technology Co Ltd.

The international board of SGE within the China (Shanghai) Pilot Free Trade Zone has already contracted about 450 metric tons of bullion and transactions have reached some 110 billion yuan, according to Xu.

In addition to the SGE's international board, China has made several moves to further liberalize the country's precious metal market in order to attract more foreign investors and open up the yuan market, including the launch of silver contracts for foreign players and trial trading of gold options.

The yuan may potentially replace the dollar in pricing commodities, as China is moving from a regional to international market, said Jeremy East, global head of metals trading at Standard Chartered Bank when the SGE's international board was launched.

"China's moves to liberalize the bullion market will benefit global bullion market as it would provide more choices and add more varieties that cater to various demands. Whether they are successful depends on how active the trading will be and how many participants they will attract, said Albert Cheng, managing director for the Far East at the World Gold Council.