Hong Kong Exchange to Launch Yuan-Denominated Gold Futures

Hong Kong Exchanges and Clearing Ltd. (HKEX) plans to offer gold futures contracts denominated in the Chinese currency and in U.S. dollars starting in the third quarter — part of its strategy to expand its commodities-trading business and offer more investment choices to holders of offshore yuan.

This latest attempt by the operator of the Hong Kong Stock Exchange and owner of the London Metal Exchange (LME) to introduce gold futures contracts in the city comes after scrapping a previous contract denominated only in dollars in 2015 due to lack of interest.

This time, the bourse is offering the ability to settle in offshore yuan in addition to dollars, which may make the contracts more attractive to investors. Trading hours will also be extended into the evening from 5:15 p.m. until 1 a.m. the next morning to draw in traders in Europe and the U.S. The exchange said this will be the first gold futures contract denominated in yuan and dollars, and that will be traded on the same electronic platform everywhere in the world.

Li Gang, co-head of market development at the HKEX, said the new gold futures contracts will help all users, from refiners to jewelers, who need to hedge and will also be attractive to banks, fund managers and precious-metals traders. They will also add to the company’s portfolio of yuan products, which already include dollar-offshore yuan futures.

Hong Kong has a geographical advantage when it comes to trading in gold futures because the bourse is open outside of European and U.S. trading hours, said Dennis Zhang, the HKEX’s head of commodities and LME marketing.

The city is a major trading hub for gold thanks to China’s appetite for the precious metal, and already has storage facilities that will help with delivery, as the new contracts will be settled physically in Hong Kong rather than settled in cash.

The contracts are still awaiting approval from the Hong Kong Securities and Futures Commission. Zhang said the bourse hopes the process will be completed by the end of May, and aims to launch the contracts in July.

The announcement of the new gold futures contracts last week comes amid other moves by HKEX to expand its commodity-trading offerings. The bourse is preparing to launch a commodities trading platform in Qianhai, a district of Shenzhen earmarked by the central government as a special zone to promote cooperation between China and Hong Kong in financial services.

The London Metal Exchange is also planning to introduce gold futures in London in July as part of an initiative called LMEprecious, which aims to offer new precious metals products comprising spot, daily and monthly futures for gold and silver.