September 11, 2014 / 7:50 AM / 3 years ago

UPDATE 1-CME to launch gold futures contract in Hong Kong by year-end

(Adds SGE gold futures launch, quotes of executives)

By Dominique Patton

BEIJING, Sept 11 (Reuters) - CME Group Inc will launch a physically deliverable gold futures contract in Hong Kong later this year to capture growing hedging and investment buying in the Asian region, a senior executive of the exchange said on Thursday.

The planned launch of CME’s 1 kilogram (kg) gold contract comes as other exchanges in the region are racing to provide a viable alternative to the metal’s global benchmark, which is under regulatory scrutiny.

China, the world’s top gold consumer, also said on Thursday that its Shanghai Gold Exchange will launch an international version of its gold futures contracts on Sept. 29.

“Asia needs more tools to manage price risks and it needs more pricing power,” CME’s managing director of metals products, Harriet Hunnable, said at an industry conference in Beijing on Thursday.

Asia accounted for 63 percent of total consumption of gold jewellery, bars and coins in 2013, up from 57 percent in 2010, according to World Gold Council.

Yet the metal’s pricing benchmark is the century-old London gold “fix” - set twice a day by four bullion banks in a conference call.

With increased attention from regulators in the wake of benchmark manipulation in other markets, the London Bullion Market Association has consulted market participants with the aim of producing a transparent electronic alternative that complies with toughened regulatory benchmarking standards.

CME said its new contract will help bring price transparency to Asia as well as meet growing demand to manage risks and create trading opportunities for investors looking to arbitrage between different contracts.

“It’s timely, it’s relevant,” Hunnable said.

The launch of the Shanghai Gold Exchange’s international bourse later this month will also be closely tracked by global investors as gold is one of the first commodities that China is opening up to foreign players by allowing them to participate directly in physical trading and to use offshore yuan.

The bourse will launch three yuan-denominated physical gold contracts, of 100 grams, 1 kg and the bigger London gold delivery bar weighing 12.5 kg.

“Our gold market is still very young. We are the biggest market in the world but our influence in the international market is still very small,” Xu Luode, chairman of the exchange said at the same conference, adding that the bourse will also open up its silver and platinum contracts to foreign investors later.

“But by setting up the international board, we can show that our country is open.”

China’s planned global gold exchange has signed up more members than targeted, as foreign banks, trading houses and refiners seek direct access to the world’s top physical gold consumer, Reuters reported last month.

The first batch of members include Goldman Sachs, Australia and New Zealand Banking Group and Standard Chartered, an official from the exchange said on Thursday.

Refiners Metalor and Heraeus have also signed up, the companies have said. HSBC, Standard Bank, Bank of Nova Scotia and J.P. Morgan are also interested in participating, sources have said.

The SGE will look at allowing major institutional investors, who can provide liquidity, to trade in the contract in the second phase. (Additional reporting by A. Ananthalakshmi; Writing by Fayen Wong; Editing by Kenneth Maxwell and Muralikumar Anantharaman)

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