Asian Gold Demand Remains In Focus; CME Group Plans Futures Contract In Hong Kong
Hong Kong (Sept 11) The significance of the Asian region to the gold market has been reinforced once again by the announcement from CME Group that it plans to launch a gold futures contract in Hong Kong by year-end.
Harriet Hunnable, managing director of metals products with CME Group, outlined plans for a physically deliverable one-kilogram contract during an industry conference in Beijing. CME Group, which describes itself as the world's leading and most diverse derivatives marketplace, is parent company of the Comex division of the New York Mercantile Exchange, the main gold futures trading platform in North America.
The contract will be tied directly to the price of bullion of 99.99% purity in Hong Kong, a CME Group spokesman told Kitco News. He said the contract will be structured similar to the benchmark 100-ounce Comex gold futures contract and will be denominated in U.S. dollars to enable global participation from customers who want to manage their exposure to regional gold prices. The contract will be physically delivered in Hong Kong at exchange-approved vaults, with three vault companies already applying to be registered with CME Group.
Veteran futures market participants called the move logical since so much of the world’s gold demand comes from the Asian region. When the price of the metal tumbled in 2013, it found a floor in large part as market participants in nations like China, India and elsewhere used the price retreat as a bargain-hunting opportunity.
World Gold Council data showed China took over the throne as the world’s largest gold-consuming nation for the first time in 2013, purchasing a record 1,065.8 tons, a year-on-year gain of 32%. India fell to second-largest consuming nation but still bought 974.8 tons, a year-on-year gain of 13%. Indian consumers might have purchased more if not for restrictions imposed on gold imports by the government as it sought to contain the current-account deficit.
WGC data showed global gold demand fell 15% to 3,756.10 metric tons for full-year 2013, mainly the result of 880.8 tons outflows from exchange-traded products based mostly in Western nations. Otherwise, jewelry demand rose 17% and buying of bars and coins rose 28% to a record high – much of it from the Asian region.
“We know the biggest consumers of gold in the world are China and India,” said Phil Flynn, senior market analyst with Price Futures Group. “Between the two of them, the CME is going to where the demand is and where the hedging opportunities are desperately needed.”
Flynn said the step was “a wise move” by CME Group and suspects the contract will be “embraced” by the region.
“I think the CME is creating a contract where the demand has been the strongest. China has had some issues with how they settle gold,” Flynn said. “They’ve had issues with the prices they are paying in their country versus what we’re seeing in the rest of the globe. So I think the CME is really creating this contract because of need and that is where the demand is going to be….It’s almost like the region was screaming for (its) own contract.”