China Starts Gold Fixing in Bid to Expand Global Market Sway

Updated on
  • Central bank has been adding to hoard in top user, producer
  • Controls on capital flows will hamper global impact: Bhar

China, the world’s biggest producer and consumer of gold, started a twice-daily price fixing on Tuesday in an attempt to establish a regional benchmark and bolster its influence in the global market.

The Shanghai Gold Exchange set the price at 256.92 yuan a gram ($1,233.85 an ounce) at the 10:30 a.m. session after members of the exchange submitted buy and sell orders for metal of 99.99 percent purity. Members include Chinese banks, jewelers, miners and the local units of Standard Chartered Plc and Australia & New Zealand Banking Group Ltd., according to the bourse.

China has overtaken India as the largest consumer as rising incomes and surging economic growth boosted purchases of jewelry, bars and coins. The central bank has also been adding to its bullion holdings in a move to diversify its foreign-exchange reserves. The country’s plans to develop a benchmark to rival the twice-daily London auction may be hampered by capital controls.

“This is a very important development and will obviously be very closely watched,” said Robin Bhar, an analyst at Societe Generale SA in London. “But as long as it exists inside a closed monetary system it will have limited global repercussions. For a truly efficient benchmark, the market has to be as unimpeded and unfettered as possible,” he said by phone Monday.

By establishing a benchmark, China is trying to increase its role in setting global prices and ensure the country’s influence matches its significance as a consumer, said Jiang Shu, chief analyst at Shandong Gold Financial Holdings Capital Management Co. The move also helps plans to develop the yuan’s international use, Jiang said by phone from Shanghai on April 15.

“Having more sway in the gold market befits the long-term strategy of expanding the yuan’s role as a global currency,” Jiang said. Shandong Gold Financial Holdings is part of the Shandong Gold Group mining company, which participates in the daily setting.

Other members include banks ranging from Industrial & Commercial Bank of China Ltd. to Bank of China Ltd., as well as jewelers and another mining company in addition to Shandong Gold, according to the exchange. In addition to the price-setting sessions, the bourse lists a range of different contracts that trade throughout the day on the electronic platform.

Monetary Use

It could be a very important development if the new benchmark is a precursor to greater use of gold in the Chinese monetary system, Kenneth Hoffman, the Princeton-based head of global metals and mining research at Bloomberg Intelligence, said by e-mail on Monday. It may also boost interest in the Shanghai free-trade zone, he said.

Global gold prices had their best quarter in almost three decades through March, rising 16 percent, as investors sought a haven amid stock market turmoil earlier in the year and as the Federal Reserve scaled back expectations for further increases in interest rates. Holdings in exchange-traded funds backed by gold have climbed 21 percent in 2016.

“The Chinese gold market has rare opportunities for development,” Pan Gongsheng, deputy governor of People’s Bank of China, said on Tuesday. “The market capacity and potential are huge. Today’s event will help enhance the impact of the renminbi on gold pricing,” Pan said.

— With assistance by Eddie Van Der Walt, Feiwen Rong, and Winnie Zhu

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