Shanghai Gold Trade Passes Record as China Seeks More Sway

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Gold trading on China’s largest physical bullion bourse is already exceeding last year’s record volume as the world’s biggest consumer seeks to exert its influence on the global market.

The volume of all contracts on the Shanghai Gold Exchange, including those in the city’s free-trade zone, was 12,077 metric tons in the 10 months to October, compared with 11,614 tons during all of 2013, according to data on the bourse’s website. This may climb to 17,000 tons by the end of the year, the exchange’s Chairman Xu Luode said at a conference today.

China overtook India as the world’s largest gold user last year while European consumption shrank amid a global flow of gold from west to east. While China vies to extend its influence over the bullion market with new contracts aimed at luring international investors, trading volumes are still a fraction of those in London, where benchmark prices are determined.

“Asia more generally is becoming more important and there are going to be increasing flows in this direction,” Wayne Gordon, an analyst at UBS Group AG in Singapore, said by phone today. “But at least at this stage, London’s still where the trade is. The reality is that everybody still uses London values as the benchmark.”

Average daily volumes for the SGE’s 99.99 percent purity contract increased to about 20,427 kilograms (656,743 ounces) in October from 11,704 kilograms a year earlier, according to exchange data. By comparison, an average 17.4 million ounces changed hands daily between members of the London Bullion Market Association, according to the group’s data.

Falling Demand

“Volumes may increase further next year as the exchange will seek to expand its members to include more Chinese equity brokerage firms, because they can bring in more investors,” Xu said at the conference in Shanghai. “The bourse is also going to introduce a trading platform on handheld devices to meet modern-day investors’ needs.”

Trading is growing even as consumption in China slows as an anti-graft campaign hurts demand for luxury goods and last year’s price-driven demand surge wasn’t repeated. Gold tumbled into a bear market in 2013 and banks including Goldman Sachs Group Inc. expect prices to extend losses as the U.S. Federal Reserve moves closer to raising borrowing costs for the first time in eight years.

Demand in China slumped 37 percent to 182.7 tons in the three months to September from the same period in 2013, the World Gold Council said in a Nov. 13 report. Jewelry consumption fell 39 percent to 147.1 tons in the quarter, while demand for bars and coins slid 30 percent to 35.6 tons, the council said.

Bullion of 99.99 percent purity in Shanghai rose 0.3 percent this year after plunging 29 percent in 2013. In London, gold for immediate delivery traded at $1,205.03 an ounce at 6:12 p.m. Shanghai time. Prices are little changed in 2014 after last year’s 28 percent slump, which was the biggest in more than three decades.

— With assistance by Feiwen Rong

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