China will let more banks import and export gold and open trading further to foreign companies as near-record prices and falling stock markets spur demand in the world’s second-largest buyer of the metal.
China may “increase the number of foreign members on the Shanghai Gold Exchange and will also study ways to allow foreign qualified bullion suppliers to deliver to the exchange,” the People’s Bank of China said yesterday.
Banks may also be allowed to hedge onshore gold positions overseas to encourage the development of yuan-denominated derivatives trading, it said.
Demand for gold in China, the world’s largest producer, increased in the first half of the year as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said on July 7. Spot prices also rose to a record in June as investors sought to protect their wealth amid concerns about the global economic recovery.
“China’s domestic production of gold, albeit the largest in the world, cannot satisfy its demand,” said Ellison Chu, managing director at the precious-metals desk at Standard Bank Asia Ltd in Hong Kong. “By allowing more foreign participation and more Chinese commercial banks to import and export, China can better balance its demand and supply.”
The total volume of gold traded on the Shanghai Gold Exchange jumped 59 percent in the first six months of the year from a year earlier, to the equivalent of 3,174.5 tonnes, Song Yuqin, vice general manager at the exchange, said last month.
“China’s gold market liberalization sends a strong demand signal and its very positive for the price of gold,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland.
“It is a structural demand shift which must result in higher gold prices as the global equation has changed now significantly with more gold consumers and investors,” he said.
The Shanghai Gold Exchange has five foreign bank members including the Chinese units of HSBC Holdings PLC and Standard Chartered PLC, a statement on the market’s Web site said.
Sales of gold products, such as bars and coins by China National Gold Group Corp, owner of the country’s largest gold deposit, jumped as much as 40 percent in the past six months, Song Quanli, deputy party secretary at the company, said on July 7.
China’s gold output may rise about 5 percent this year, solidifying the nation’s position as the world’s largest producer, Song said. China produced 284 tonnes of gold last year, the executive said.
In order to increase physical gold supply, the central bank will “increase the number of commercial banks that are qualified to import and export gold, based on the market demand situation,” it said in yesterday’s statement.
“The Chinese central bank is liberalizing the gold market step by step and this is the latest move,” Standard Bank’s Chu said. “It will allow more foreign participation in China’s growing gold market and it will also help China to be more integrated into the global gold-trading system.”
China’s central bank also said it will support overseas investment plans by “large-scale” bullion companies by backing them financially.