Shanghai Gold Exchange cuts transaction size to limit price moves

BEIJING (Reuters) - Shanghai Gold Exchange, the world’s biggest physical bullion exchange, said on Wednesday it will curb the amount of gold investors can trade at one time, a move analysts said would limit institutional investors’ influence on prices.

An employee arranges gold jewellery in the counter as her arm is reflected in the mirror at a gold shop in Wuhan, Hubei province August 25, 2011. REUTERS/Stringer

The exchange said in a statement it will halve its limit on transactions to 500 kg on some spot gold contracts starting Jan. 1. It did not give a reason for the move and the exchange did not answer calls seeking comment.

The new limit, which would be worth more than $20 million based on current prices, suggests the move is targeted at institutional investors, such as banks and hedge funds.

The move does not affect the amount traders can sell or buy in any one day, but it would likely force traders to carry out big transactions in multiple moves, reducing the potential for “fat finger” erroneous trades or preventing big investors from carrying out rapid-fire buying or selling to influence prices.

It may also drive up the transactions costs.

Turnover in the exchange has soared as Chinese retail investors’ appetite for gold as a safe-haven investment has increased. In November, volume hit 3.4 million kg, the highest monthly total so far this year.

International prices are languishing close to their lowest for the year as institutional investors have sold the yellow metal in anticipation that the U.S. Federal Reserve will opt for more interest rate hikes next year. The Fed indicated this after raising rates on Dec. 14.

Higher interest rates discourage the buying of non-interest-paying bullion, which is priced in dollars.

The measures “will prevent a big amount of capital flowing out of the market at one time, and therefore prevent the gold price going down sharply in a short period of time,” Xie Qingpeng, gold analyst at Guotai Jun’an futures.

Other major commodity exchanges in China this year have hiked transactions fees and margins as well as cut position limits on everything from rubber to coal to curtail rising prices.

Beijing has blamed speculation for the soaring markets.

Reporting by Josephine Mason and Muyu Xu; Editing by Christian Schmollinger