Malaysia’s first gold futures contract will start trading on Oct. 7 to meet investor demand, according to the head of the country’s derivatives exchange.
Gold will continue to be volatile and the 100-gram, ringgit-denominated contract will allow investors to trade without worrying about currency fluctuations, Chong Kim Seng, chief executive officer of Bursa Malaysia Derivatives Bhd., said in an interview. Bullion for delivery up to one year will be cash settled and benchmarked against the London fixing, he said.
Prices slumped into a bear market this year after 12 annual gains, spurring increased demand from buyers in Asia including China, Thailand and Indonesia. Malaysia imported 9 billion ringgit ($2.8 billion) of gold in 2012, mainly for processing into jewelry, and exported about 7 billion ringgit of gold jewelry, said Chong. Gold imports totaled 6 billion ringgit in the first half, signaling increased physical demand, he said.
“The small contract size means retail customers, big or small, can be involved and traders who want to do hedging can just do multiples,” said Chong. “The issues that’s facing the U.S., the government shutdown and the tapering policy, have an impact on the U.S. dollar and interest rates, so it’s important that people consider gold as part of their portfolio.”
Gold for immediate delivery, which traded at $1,310.74 an ounce at 5:14 p.m. in Kuala Lumpur, has declined this year on speculation the U.S. Federal Reserve will taper stimulus as the largest economy strengthens and inflation fails to accelerate. Bullion rose 2.2 percent yesterday and fell 3.1 percent on Oct. 1 as the U.S. government’s first shutdown in 17 years began.
Rising demand for gold in Asia helped offset record sales from bullion-backed exchange traded products. Holdings that increased every year since the first product was listed in 2003 have shrunk 705.7 tons this year, reaching a three-year low of 1,926.2 tons yesterday, data compiled by Bloomberg show.
Demand for gold in Malaysia may increase as investors seek to hedge against a depreciating currency. The ringgit is the worst performer in Southeast Asia this year, with a 4.3 percent loss, after Indonesia’s rupiah and the Philippine peso.
“There’s a lot of investing interest out there in the marketplace and a need for a more safe and trusted regulated platform,” said Chong. Bursa, part-owned by CME Group Inc. and a unit of Bursa Malaysia Bhd., may start gold options and silver futures contracts later on, he said today.