Tags: china | gold | fix | metals

China Joins Century-Old Gold Fix as Sway in Commodities Spreads

Tuesday, 16 Jun 2015 02:20 PM

A Chinese bank will help set prices in London’s $20 billion gold market for the first time ever as the nation strengthens its influence in the world’s financial system.

Bank of China Ltd. will join lenders including Goldman Sachs Group, Inc. and Barclays Plc. that run the twice-daily auction system for pricing gold, according to a statement from the London Bullion Market Association on Tuesday. The process, which dates back to 1919, sets a benchmark level for gold that’s used by mining companies, refiners and hedge funds.

China, the world’s second-largest economy, is expanding its presence in gold and currency markets worldwide as the country seeks to make the yuan a viable competitor to the dollar. An International Monetary Fund team is visiting China this month to discuss including the yuan in the IMF’s Special Drawing Rights basket of reserve currencies.

“They want to be on the top table in all areas of international trade and this is no different,” Ross Norman, chief executive officer of dealer Sharps Pixley Ltd., said by phone from London. “They want to be represented in locations where benchmark prices are derived, and they have demonstrated that by signing up for the fix.”

Participation in the gold auction will increase the link between China and international markets, and make the gold price better reflect the nation’s supply and demand, Yu Sun, general manager of Bank of China’s London branch, wrote in a press release.

Gold Auction

Gold slid 0.6 percent to $1,179.84 an ounce as of 4:51 p.m. in London, according to Bloomberg generic pricing.

Bank of China will be added to the price-setting auction for gold on June 22, Intercontinental Exchange Inc. said in an e-mail. The lender had the biggest market share in proprietary gold trading on the Shanghai Gold Exchange, according to an annual report released in April.

The London gold auction started earlier this year as a more transparent alternative to a previous process in which banks talked by phone. ICE Benchmark Administration, which runs the process, expects more firms to join soon, according to President Finbarr Hutcheson.

“To have China participate in the fix is a positive development both for the process and for China,” Afshin Nabavi, the head of trading and physical sales at MKS (Switzerland) SA, said by phone from Geneva. “It shows they are opening up to the world.”

Commodities Trading

China, the biggest consumer of raw materials, has focused on commodities in order to bring its significance in financial markets in line with its sway as a importer and producer. The country has seen a surge in commodities-derivative trading, with volumes across the Shanghai Futures Exchange rising 31 percent last year.

Separately, Bank of China, the nation’s third-biggest lender by market value, said it’s starting a crude oil index based on West Texas Intermediate. The product will be the first global benchmark commodity index offered by a Chinese financial institution, according to an e-mail.

Efforts to promote the yuan have fueled speculation the government is stockpiling gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves. The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, according to data from Bloomberg Intelligence in April.

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A Chinese bank will help set prices in London's $20 billion gold market for the first time ever as the nation strengthens its influence in the world's financial system.
china, gold, fix, metals
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2015-20-16
Tuesday, 16 Jun 2015 02:20 PM
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