China readies to launch yuan gold fix before year-end

Image courtesy of SGE.

China, the world’s top gold producer and one of the biggest consumers, is in talks with the Chicago Mercantile Exchange Group to set a deal that would see the Shanghai Gold Exchange (SGE) and CME listing each other’s contracts on their respective exchanges.

The move comes as China readies to launch its own yuan-based bullion fix later this year via the SGE, the world’s biggest physical gold exchange, according to Shen Gang, vice president of the SGE, as reported by Bloomberg.

She added that SGE has already applied to the People’s Bank of China for approval of its pricing system.

While details of the fix remain unknown, market analysts say it would be derived from a contract traded on the bourse for a few minutes, with the exchange acting as the central counterpart. That would make the process transparent and so address one of the main concerns about the London fix.

The goal for China is to boost its influence in global commodities and currency markets while trying to make the yuan a viable competitor to the U.S. dollar.

The Shanghai bourse will also open a trade link with the Hong Kong- based Chinese Gold & Silver Exchange Society on July 10, according to Bloomberg. SGE is also in discussions with the Dubai Gold & Commodities Exchange to introduce yuan- denominated gold products in Dubai.

According to the World Gold Council, China’s demand for the yellow metal may rise to as high as 1,000 metric tons this year, provided that the country’s stock market reverses its rally and investors seek haven investments.