Yuan-denominated gold fix near launch

System will give China larger role in setting international price of the precious metal

A yuan-denominated gold fix will be launched by yearend via the Shanghai Gold Exchange to give the world’s biggest producer and leading consumer of bullion more influence over pricing.

The first public confirmation made by an exchange official comes after Reuters cited sources in February on the proposal for the fix to be set through trading on the SGE, the world’s biggest physical bullion exchange.

“We will be introducing a yuan-denominated fix at the right moment. We hope to introduce (it) by the end of the year,” SGE Vice-President Shen Gang said at the LBMA Bullion Market Forum in Shanghai on Thursday.

“We have policy support for development (of the gold market),” she added.

Sources familiar with the matter have said that the central bank should soon approve the fix.

Pan Gongsheng,

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deputy governor of the People’s Bank of China, said the central bank will continue to support “speedy and healthy growth of the China gold market”.

If the yuan fix takes off, China could make local buyers and foreign suppliers pay the domestic yuan price, making the current dollardenominated London fix less relevant in the world’s biggest bullion market.

However, given that the yuan is not fully convertible, the two fixes could co-exist.

The SGE submitted details of the fixing process and rules for participants to the PBOC a few weeks ago, sources familiar with the matter said.

Once the SGE gets PBOC approval, it will work to sign up Chinese and foreign banks for the fix. About 15 Chinese banks are expected to participate initially, the source said.

The exchange has held talks with foreign banks regarding the fix but they could be reluctant to participate at a time when the United States and European regulators are scrutinizing benchmarks across asset classes following the manipulation of the London interbank offered rate.

“It will be hard to join the fix because there are lots of internal compliance issues. It might take months before we get everything done in-house,” a trader from a global bullion bank said on the sidelines of the LBMA conference.

In a trial run for the fix in April, some foreign banks participated, as did many major Chinese banks.

While details of the fix are yet to be revealed, sources said it would be derived from a contract traded on the bourse, with the SGE acting as the central counterparty. That could make the process transparent, addressing one of the big concerns about the London fix.

The yuan fix is the most recent effort by SGE to boost China’s position in the global gold market. The exchange opened an international bourse in September, allowing foreigners to trade yuan-denominated contracts for the first time.

Top domestic banks including the Industrial and Commercial Bank of China Ltd and Bank of Communications Co are members of the international bourse, along with foreign banks such as the Australia and New Zealand Banking Group, Standard Chartered and HSBC, among others.