The Shanghai Futures Exchange, one of China's major futures trading venues, has recently received approval to launch gold futures trading in China. The new gold futures investment vehicle emphasizes the increased refinement of the country's financial markets and, most importantly for us, rising investor interest in the precious yellow metal.
New Gold Futures in China
After the successful launch of zinc futures in March 2007, the China Securities Regulatory Commission has approved gold futures trading in China. Futures trading is slated to begin on January 9thwith simulated trading set to initiate on Wednesday.
Like all other futures trading systems around the world, the new gold futures in China will offer investors, from large financial institutions to individuals, a hedging option to avert risks against the strongly fluctuated gold prices through future trading.
The Shanghai Futures Exchange currently offers cash and cash-deferred contracts for gold, platinum, and silver. But trading these contracts is difficult and expensive for the Regular Joe, or should I say the Regular Chung, investors. The new futures trading system will save money for Chinese investors from the much lower transaction costs of gold futures.
Aside from the investors, this is excellent news for the gold mining industry as well. Chinese producers will now be able to hedge against their own gold production to manage their finances better.
China's gold production has risen more than 20 tonnes in each of the past four years and will likely increase to 260 tonnes in 2007, putting it on course to surpass the US as the world's second-biggest producer.
With this huge mid-term growth in production there is a large demand from producers who don't want to be subject to fluctuations in the spot market. These companies want to be able to hedge, particularly if they are making large purchases over time.
Turnover (the value of contracts traded) on the Shanghai Futures Exchange, surged 76% to 20 trillion yuan (US$2.74 trillion) in the first 11 months of 2007. Total turnover in 2006 was 12 trillion yuan (US$1.64 trillion) according to data on the Shanghai Futures Exchange's website. Trading volume also rose 44% to 152 million contracts in the first 11 months of 2007, compared with 116 million in all of 2006.
The new gold futures trading system in China is yet another small piece adding to the larger gold bull puzzle.
Until next time,