Hong Kong’s Chinese Gold & Silver Exchange Society, a century-old bullion bourse, started trading gold quoted in yuan, boosting the city’s status as an offshore hub for the currency.
The contract may generate as much as HK$6 billion ($770 million) in trades a day, exchange President Haywood Cheung said in an Oct. 14 interview. Daily bullion trading volume at the society, which has 171 active members, has jumped to HK$136 billion this year from last year’s HK$31 billion on appetite for gold as a haven from stock declines, he said.
“There’s triple demand for this yuan product,” said Cheung. “Investors can enjoy the bull market in gold, the yuan’s appreciation and hedge gold denominated in other currencies against the yuan.”
Chinese Vice Premier Li Keqiang pledged the nation’s support for yuan business in Hong Kong two months ago. The city’s richest man, Li Ka-shing, sold Hong Kong’s first renminbi shares in April and the city’s bond sales in the currency have more than tripled this year. Yuan deposits in the former British colony rose 93 percent this year to a record 609 billion yuan ($96 billion) in August.
“It’s part of a larger trend in Hong Kong to increase investments priced in renminbi,” said Zhang Qiang, an analyst in Shanghai at Haitong Futures Co., China’s largest futures brokerage by registered capital. “It’s a good proposition for investors who want exposure to both gold and renminbi, however, this would depend largely on the two moving in tandem.”
The contract traded at 349.32 yuan per gram, or the equivalent of $1,680 an ounce, according to data on the society’s website at 4:44 p.m. in Hong Kong. That compares with 348 yuan on the Shanghai Gold Exchange and $1,693.85 in London. In Hong Kong’s offshore market, the yuan advanced 0.23 percent to 6.4270 per dollar, a 0.9 percent discount to the onshore spot rate. The currency rose 0.12 percent in Shanghai at 6.3706.
Twenty-five members will participate at the initial stage, Cheung said, adding that banks and jewelers had pushed him to start the contract. The society’s members include Chow Sang Sang Holdings International Ltd., the biggest Hong Kong-listed jewelry maker and retailer, as well as HSBC Holdings Plc., the city’s biggest lender, he said. BOC Hong Kong Holdings Ltd. and Wing Hang Bank are the clearing banks.
The yuan in Shanghai will advance 5.1 percent to 6.06 by the end of 2012, according to the median estimate in a Bloomberg survey of 18 analysts. Europe’s debt crisis triggered a 2.1 percent slide in the offshore yuan rate in Hong Kong last month. The yuan is a denomination of China’s currency, the renminbi.
“It’s still the right timing,” Cheung said. “With the depreciation of the dollar and problems in the Eurozone, investors realize they want some other currencies that are safer like the renminbi. Gold can be a way for people to bet on the yuan.”
The Hong Kong Mercantile Exchange, backed by the world’s largest lender, started trading dollar-denominated gold futures on May 18, tapping demand for the metal from Asian investors. It plans to offer products in yuan this year, Albert Helmig, president of the exchange, said in a May 9 interview.
Bullion prices have jumped 19 percent this year, reaching a record $1,921.15 an ounce on Sept. 6. Gold prices fell from their peak as investors sold the metal to cover losses in other markets. The precious metal will likely trade between $1,500 and $1,700 an ounce in the short term, Cheung said.
The society, started in 1910, will consider trading silver in the Chinese currency later, Cheung said, declining to identify the timeframe. The society has imposed a daily ceiling of 300 kilos for physical delivery of gold denominated in yuan to avoid depleting the currency pool in Hong Kong, he said.
“The sudden influx into gold bars may take away half of the yuan liquidity in Hong Kong,” Cheung said. “The uncertainties in the global economy are supporting gold.”