Published : Oct. 17, 2011 - 20:36
Hong Kong’s Chinese Gold & Silver Exchange Society, a century-old bullion bourse, will start trading gold quoted in yuan Monday, boosting the city’s status as an offshore hub for the currency.
The gold product 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.
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 yuan- denominated stock 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.
China’s Vice Premier Li Keqiang. (Bloomberg)
“There’s triple demand for this yuan product,” said Cheung on Oct. 14. “Investors can enjoy the bull market in gold, the yuan’s appreciation and to hedge gold denominated in other currencies against the yuan. I’ve had enquiries from banks, goldsmiths and jewelers. They all pushed me to launch the product.”
Twenty-five members will participate in yuan-denominated gold trading at the initial stage, Cheung said. The society’s members include Luk Fook Holdings (International) Ltd., Chow Sang Sang Holdings International Ltd., Hang Seng Bank and HSBC Holdings Plc., he said. BOC Hong Kong Holdings Ltd. and Wing Hang Bank are the clearing banks. (Bloomberg)
Yuan Appreciation
The yuan in Shanghai will advance 5.3 percent to 6.06 per dollar by the end of next year, 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.
“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, even it’s not yet fully convertible.”
The Hong Kong Mercantile Exchange, backed by the world’s largest lender, started trading of 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.
Safe Haven
Bullion prices have jumped 17 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, compared with about $1,676 last week, 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.” (Bloomberg)