China, the world’s biggest producer and consumer of gold, announced on Tuesday it launched its own benchmark, or “fix,” for the price of gold in an effort to have greater access and control over the international gold market.
The Shanghai Gold Exchange, which operates the benchmark, set the price for 99.99% gold at 256.92 yuan ($39.71) per gram, it said on its website. This was marginally higher than the international price at the time, according to goldprice.org.
The 12 fixing members include 10 Chinese banks and two foreign banks – Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Shanghai Pudong Development Bank, China Minsheng Bank, Industrial Bank, Ping An Bank, Bank of Shanghai, Standard Charted Bank (China) and Australia and New Zealand Bank (China).
Another six companies – China National Gold Group Corp, Shangdong Gold Group, Shanghai Lao Feng Xiang, Chow Tai Fook, Bank of China (Hong Kong) Ltd and MKS (Switzerland) SA – take part in the benchmark as reference price members.
“China needs a gold benchmark that reflects local market flows and reduces gold’s price dependency on the US dollar – so this is the ideal time for the Shanghai Gold Benchmark to launch,” Roland Wang of the World Gold Council said.
“An Asian-focused, yuan-denominated benchmark will significantly increase the liquidity and efficiency of the gold price discovery mechanism,” Wang added.
The exchange aims to attract the interest of foreign participants by allowing foreign price-setting companies and their clients to trade the contract.
The London gold benchmark includes 13 participants and is quoted in dollars per ounce and set via a twice-daily electronic auction process run by Intercontinental Exchange (ICE).
Last year, mainland China’s demand for gold was 984.5 tonnes, with jewelry at 783.5 tonnes, and bars and coins at 201 tonnes, according to the World Gold Council in China.
Analysts said denominating the gold fix in China’s own yuan currency is aimed at increasing international use of the unit.
“Having more sway in the gold market befits the long-term strategy of expanding the yuan’s role as a global currency,” Jiang Shu, chief analyst at Shandong Gold Financial Holdings Capital Management, told Bloomberg News.
In December, Jiao Jinpu, the head of the Shanghai Gold Exchange, said that launching a yuan-dominated benchmark for gold would promote “internationalization” of its business.
The exchange has said it’s looking into creating yuan-based benchmarks for other precious metals including silver, platinum and palladium, according to domestic media reports.