It will introduce lease rates in yuan for fixed time periods, Teng Wei, a department manager at the bourse, said at a briefing today. More than 20 banks and financial institutions including the China units of United Overseas Bank Ltd. (UOB) and Australia and New Zealand Banking Group Ltd. have used a gold lease contract promoted by the exchange since February, Teng said.
“The gold lending market is growing in China with an increasing number of participants,” he said. “We want to set up a platform to help standardize the deals and lower transaction costs.”
China became the world’s largest gold user last year, purchasing a record 1,066 metric tons, as the steepest price drop since 1981 spurred a 32 percent jump in bars, coins and jewelry demand, according to estimates by the World Gold Council. Physical demand from Asia helped bullion gained 9.3 percent this year.
Gold leasing allows owners such as banks to lend out the precious metal in return for cash for a set period, said Liu Xu, an analyst at Capital Futures Co. in Beijing.
Bullion for immediate delivery in London fell 0.1 percent to $1,317.77 an ounce at 5:35 p.m. Beijing time. Gold of 99.99 percent purity on the Shanghai Gold Exchange dropped 0.1 percent to close at 262.64 yuan a gram ($1,314.90 an ounce).
Shanghai’s new gold-for-cash contract is “a rudimentary version” of the gold lease rates traded in London, Teng said.
The one-month gold forward offered rate in London, which shows the interest rate at which dealers will lend metal for dollars, fell 0.002 percent yesterday after being positive for most of March, data compiled by Bloomberg show.
An increase in gold liquidity can push lease rates lower while a strong appetite for borrowing gold can cause the rates to spike, according to the London Bullion Market Association.