Trading in mainland gold futures is on the cards for Hong Kong after the Airport Authority (AA) confirmed recently a precious metal depository will be opened at the Hong Kong International Airport by the end of 2007.

 

The bonded depository will cover 300 square meters. The vault will be monitored by the AA and its income will mainly come from depositors' rents, an AA spokesman said.

 

Market watchers welcomed the move, saying it would help consolidate Hong Kong's position as an international trading center.

 

They also said it paved the way for the establishment of a commodity futures market in Hong Kong, although some doubted whether a gold futures market was a practical step for the city.

 

The Chinese Gold and Silver Exchange Society (CGSE) has been urging the government to build the depository for three years. "The government approval is positive. It could help build Hong Kong as the regional gold trading center," said CGSE President William Lee.

 

Michael Ling, managing director of Upbest Precious Metals (Asia), said: "The lack of a place for settlement has long hindered the development of gold futures in Hong Kong. The gold depository is a big leap, which could speed up the launch of the futures."

 

The Hong Kong government recently proposed the establishment of a commodity futures market in Hong Kong to support the mainland's economic boom. And gold is believed to be the first product in their sights.

 

Lee pointed out the industry must be well prepared before the exchange is formally established.

 

The CGSE plans to launch an electronic trading platform, which is scheduled to open in the second half of the year.

 

"The platform incorporates round-the-clock online trading in futures and spot markets, and investors will be able to get access to the mainland and foreign exchanges," he said.

 

He revealed that the CGSE is in talks with the Shanghai Gold Exchange (SGE) to study the availability of cross-regional trading. "It depends on the opening of yuan convertibility."

 

But Ling said the CGSE was likely to get the SGE approval because "there are just some technical issues left for the two exchanges to discuss".

 

The Hong Kong Special Administrative Region government has not laid down a concrete timeframe for the launch of a gold futures exchange.

 

Lee said the CGSE had previously spoken to Frederick Ma, secretary for financial services and the treasury of the Hong Kong government. "He did not give any affirmative response, but we feel the government supports the idea."

 

(China Daily January 24, 2007)