Good News: May lead to more mergers and acquisitioChina to Further Open Gold Market to Trading, Imports
August 03, 2010, 12:50 PM EDT
By Bloomberg News
(Adds comments from World Gold Council starting in fourth paragraph, from UBS in eighth.)
Aug. 3 (Bloomberg) -- China will let more banksimport and export gold and open trading further to foreign companies asnear-record prices and falling stock markets spur demand in the world’ssecond-largest buyer of the metal. Gold prices gained.
China may “increase foreign members on the ShanghaiGold Exchange and will also study ways to allow foreign qualifiedbullion suppliers to deliver to the exchange,” the People’s Bank ofChina said today. Banks may also be allowed to hedge onshore goldpositions overseas to encourage the development of yuan-denominatedderivatives trading, it said.
Gold demand in China, the world’s largest producer,gained in the first half as government measures to cool the propertymarket and falling equities spurred investment, the Shanghai GoldExchange said July 7. Gold climbed to a record in June as investorssought to protect their wealth amid concerns about the global economicrecovery, and is headed for a 10th consecutive annual increase.
The latest steps “are extremely encouraging and seemcertain to lead to increased gold demand in a country that has recentlybeen contending with India for position of the largest consumer of goldin the world,” said George Milling-Stanley, the New York-based managingdirector of government affairs at the producer-funded World GoldCouncil.
Prices Climb
Gold for immediate delivery gained as much as 0.7percent to $1,190.70 an ounce and traded at $1,188.40 at 5:21 p.m. inLondon. Bullion reached a record $1,265.30 an ounce on June 21.
“China’s domestic production of gold, albeit thelargest in the world, cannot satisfy its demand,” said Ellison Chu,managing director at the precious-metals desk at Standard Bank AsiaLtd. in Hong Kong. “By allowing more foreign participation and moreChinese commercial banks to import and export, China can better balanceits demand and supply.”
The total volume of gold traded on the Shanghai GoldExchange jumped 59 percent from a year earlier in the first half to theequivalent of 3,174.5 metric tons (102.1 million troy ounces), SongYuqin, vice general manager at the exchange, said last month.
“It will allow more participants in the Chinese goldmarket” and enable more banks to trade in the country, said Edel Tully,a London-based analyst at UBS AG. While the change signals the Chinesegold market’s increased importance, it won’t draw trading away fromEurope because the country’s market is already at a “significant” size,she said.
Standard Chartered
The Shanghai Gold Exchange has five foreign bankmembers including the Chinese units of HSBC Holdings Plc and StandardChartered Plc, according to a statement on the bourse’s website.
Sales of gold products such as bars and coins byChina National Gold Group Corp., owner of the country’s largest depositof the metal, jumped as much as 40 percent in the past six months, SongQuanli, deputy party secretary at the company, said July 7.
China’s gold output may rise about 5 percent thisyear, solidifying the nation’s position as the world’s largestproducer, Song said. China produced 313 tons of gold last year, theexecutive said.
To increase physical gold supply, the central bankwill “increase the number of commercial banks who are qualified toimport and export gold, based on the market demand situation,” it saidin today’s statement. The central bank also said it will supportoverseas investment plans by “large-scale” bullion companies by backingthem financially.
Official Reserves
The State Administration of Foreign Exchange, whichmanages the nation’s reserves, said last month that U.S. governmentdebt has the benefits of “relatively good” safety, liquidity, lowtrading costs and market capacity. Gold is unlikely to become a majorholding in China’s foreign reserves owing to the metal’s big priceswings and lack of interest payments, SAFE said then.
China’s announcement today “contradicts those whohad misinterpreted recent comments from officials about the limitedrole of gold in the country’s official reserves as implying some sortof disapproval of gold,” said Milling-Stanley of the council. “That isclearly not the case, with the government taking significant steps toimprove access to gold for their citizens.”