Dubai Gold & Commodities Exchange plans to list a spot gold contract in the second quarter of next year as demand for the metal in the region increases.
The bourse, which offers gold and silver futures, is talking to local merchants and industry organizations and aims to get regulatory approval for the product by early 2014, said Chief Executive Officer Gary Anderson. Demand for bullion in Dubai expanded eightfold in the last six to 10 years, he said.
Dubai accounts for about 25 percent of global physical gold trade and the United Arab Emirates will grow as a precious-metals trading hub partly because of its location near the largest consuming nations, according to the Dubai Multi Commodities Centre, which owns a majority stake in the DGCX. Gold, set for the first annual decline in 13 years, advanced 14 percent since reaching a 34-month low in June as lower prices spurred demand for jewelry, bars and coins in Asia.
“Dubai is a very big center and we have a very good gold eco system here from refineries to jewelers and pretty much everything in between,” Anderson said today by phone from Dubai. “The one thing that’s really missing is a Dubai spot market.”
Bullion for immediate delivery slumped 19 percent to $1,355.64 an ounce in London this year as some investors lost faith in the metal as a store of value and on speculation the Federal Reserve will slow stimulus as the economy strengthens.
Gold trade in Dubai totaled $45 billion in the first half of this year, compared with $70 billion in all of 2012, Gautam Sashittal, chief operating officer of government-owned DMCC, said in a Sept. 30 interview in Rome. The DMCC is a free zone with more than 7,000 companies, some in the precious metals industry, Sashittal said.
India and China are the biggest gold users, according to the London-based World Gold Council. Consumer purchases of gold will advance to as much as 1,000 metric tons in India and China this year, the council has said. That would exceed China’s record of 778.6 tons set in 2011 and approach India’s all-time high of 1,006.5 tons in 2010.
“There is increased demand and we sit geographically in a great location,” Anderson said. “This past 18 months there’s certainly been a trend where the trading of gold is moving from west to east.”
Investors sold 750.2 tons through gold-backed exchange-traded products this year, erasing $60.1 billion from the value of the funds, data compiled by Bloomberg show. Holdings reached 1,881.4 tons on Oct. 25, the lowest since April 2010.
The size of the spot gold contract will probably be 1 kilogram (32 ounces) and the DGCX is aiming to list a plastics contract in the first quarter, Anderson said. While there are “no concrete plans” yet for other precious metals products, a silver spot contract and platinum and palladium contracts may be possible in the future, Anderson said.
“Demand for silver in the area is relatively big and there’s no reason why it could not work, but again we would want to speak to the industry and see if there’s a real requirement for that to happen,” Anderson said. “Our real focus is on spot gold.”
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