Shanghai silver and gold volumes hit records in after-hours trade

SHANGHAI (July 12)  Trading volumes for silver and gold on the Shanghai Futures Exchange (ShFE) have jumped to record highs a week after the bourse launched after-hours trading, driven by a surge in investment and hedging demand.

The ShFE, China's biggest commodity exchange by contract value, launched night trading on July 5 to give investors a tool to manage risk during trading hours in London and New York.

The extended hours could give China a better hold in the global gold market and offer a taste of what lies ahead for contracts such as base metals, if the exchange sticks to plans to extend trading hours for other products.

"The pricing power for main commodities is still decided by trading in overseas market, and any large price movement will not be favourable for domestic investors to control risks," said Sun Yonggang, an analyst with Everbright Futures in Shanghai.

Weekly buy and sell trading volume for the most active gold contract more than doubled from a week ago, to 2.06 million lots by Friday, exchange data showed.

Daily transactions for gold rose by nearly a quarter to a record of 595,642 lots on Thursday, versus an average of 483,529 lots in June, the data showed.

Daily volume for the silver contract surged roughly six-fold from a week ago to 2.23 million lots on Thursday.

"The night gold trade will help investors to adjust their positions immediately facing overseas market volatilities and the liquidity for gold night trade looks promising," Sun said.

Unlike other exchanges, Shanghai data is counted twice, with each side of a buy and sell transaction tallied.

Before after-hours trading was launched, investors in China, the world's second-largest gold importer, were often exposed to global price fluctuations in the U.S. and European markets.

The exchange also plans to expand trading hours for other contracts, chairman Yang Maijun said in a statement on July 5.

Yang did not say what products were being considered, but one Hong-Kong based trader said any extension of trading hours could have a big impact on base metals.

"The silver and gold contracts have been going gangbusters. You could reflect on ... what that could mean for their base metals contracts, assuming they plan to start the night sessions," he said.

Extending trading hours into the European day would overlap with the heaviest volume trading hours on the London Metal Exchange (LME), boosting the opportunity to trade price differentials, he said.

This could see ShFE volumes narrow the gap with the LME, he said. ShFE copper turnover in tonnes was just under a third of LME volumes last year.

Gold slipped on Friday, but remained on track for its biggest weekly gain since October 2011, as fears of an early end to U.S. monetary stimulus subsided and bullion recovered some of its appeal as a hedge against inflation.