SGE to Start Fixing Gold Price Denominated in Yuan

gold-barShanghai: The Shanghai Gold Exchange (SGE) will try to start offering the renminbi-denominated gold-fixing price this year, as an alternative to the dollar-denominated gold-fixing in London. Xu Luode, head of SGE said that the bourse has been researching the pros and cons of the yuan-denominated gold-fixing price, and will strive to launch it by the end of this year as market conditions have laid “foundations” for the new price-fixing.

“The yuan-denominated price for gold will not compete with the current dollar-denominated price. Instead, it will be complementary, offer one more choice and the yuan-denominated and US dollar-denominated systems can be cross-referenced,” said Xu, adding that the yuan-denominated benchmark price will only make gold prices more reasonable.

The global gold prices are decided by the century-old London fix, which has been under scrutiny because of alleged price-manipulation and will soon be replaced by a new mechanism involving more participants. So this move by SGE will help popularize global use of the renminbi, which has already become world’s fifth most-used settlement currency and reserve currency for some banks.

The international board of SGE within the China (Shanghai) Pilot Free Trade Zone has already contracted about 450 metric tons of bullion and transactions have reached some 110 billion yuan, according to Xu. In addition to the SGE’s international board, China has made several moves to further liberalize the country’s precious metal market in order to attract more foreign investors and open up the yuan market, including the launch of silver contracts for foreign players and trial trading of gold options.

“China’s moves to liberalize the bullion market will benefit global bullion market as it would provide more choices and add more varieties that cater to various demands. Whether they are successful depends on how active the trading will be and how many participants they will attract, said Albert Cheng, managing director for the Far East at the World Gold Council.