China launches gold options as prices near six-year highs

SHANGHAI (Reuters) - China, the world’s top bullion producer and consumer, launched its first gold options contract on the Shanghai Futures Exchange on Friday, adding to an array of investment options for the metal that saw prices hit six-year highs this year.

Gold prices globally have gained about 15% so far this year and are set for their strongest annual increase since 2010, as global growth concerns and uncertainties over the U.S.-China trade war boosted the metal’s appeal as a safe haven.

The Shanghai Futures Exchange’s most-traded gold futures contract for February 2020 delivery, which rose to its highest in six years in September, was up 0.3% at 335.72 yuan ($47.90) per gram on Friday afternoon.

The exchange’s most active April 2020 gold options contract for an exercise price of 336 yuan per gram had a call option at 9.14 yuan per gram and put option at 7.80 yuan per gram on Friday afternoon.

In commodity derivatives trading, options give the buyer the right, but not obligation, to buy or sell a futures position at a specified price.

“In deepening China’s financial structural reform, gold options are an effective supplement to gold futures, which will meet the needs of physical enterprises and help improve market risk management,” said Jiang Yan, chairman of the Shanghai Futures Exchange at the contract launch event.

The exchange appointed 14 market-makers to create liquidity for the contract, including Shandong Zhaojin Investment Co, a unit of China’s fourth largest gold miner Shandong Zhaojin Group, and CITIC Securities Co, China’s biggest brokerage firm.

Chinese demand for gold has increased over the past decade, surpassing India as the world’s top consumer in 2014, as its demographic grew wealthier.

Open interest in Shanghai’s gold futures contract has also gained over the years, with volumes hitting record highs of over 350,000 contracts in August. They have since decreased, but are still holding around 190,000 contracts, double the volumes seen five years ago.

The Shanghai Gold Exchange launched an international trading platform in China’s Shanghai Free Trade Zone in 2014 to encourage market participation from foreign investors.

“Entities that have this demand (for a gold options contract) include companies in the entire industrial chain of gold, because it is convenient for risk management,” said Zhang Yongtao, secretary general of the China Gold Association.

(This story corrects tonne to gram in paragraph 4)

Reporting by Emily Chow; Editing by Arun Koyyur