Singapore and Hong Kong Race For Gold Benchmark – Use Brinks and Via Mat For Storage

Singapore and Hong Kong Race For Gold Benchmark – Use Brinks and Via Mat For Storage

Singapore and Hong Kong appear to be competing for the a new global gold price benchmark. Further details emerged at the weekend about the planned launch by Singapore of a new 1kg physically deliverable gold contract for the Asian wholesale gold market. Last week, CME announced a new 1 kilogramme gold contract in Hong Kong.

The new Singapore gold contract differs from others in that as well as acting as a price discovery benchmark for 1kg gold bars in the Asian region, it has been specifically designed to actually deliver gold to wholesalers, because settlement of the contract is in gold 1kg bars and not in cash. A 1kg gold bar is 32.15 troy ounces.

In June the Singapore Exchange (SGX) indicated that their 1kg gold contract would probably be launched by September, but the launch date has now been pushed back to either October or November. The SGX is Singapore’s securities and derivatives exchange and clearing and depository provider.

The Singapore contract will be in lots of 25 kgs, denominated in US dollars, and it will trade for three hours in the Singapore morning time. Singapore is 7 hours ahead of London and 12 hours ahead of New York, and 2.5 hours ahead of the Indian market, but is in the same time zone as both Hong Kong and Shanghai.

Six consecutive daily contracts will trade at the same time, so when one contract expires, another will be added.

Physical settlement is two days after trade date and consists of 99.99 purity 1kg gold bars that meet the approval of the Singapore Bullion Market Association (SBMA) good delivery list . This means that wholesalers will be able to gauge demand and supply of 1kg bars over the following week.

At a gold conference in Pune, India this weekend, the SGX clarified the new launch date and pointed out how the new 1kg contract could benefit the physical Indian gold market.

At the conference, Derek Neo of the SGX said that the 1kg gold contract will “benefit Indian traders as they will be able to see the price trend of gold kilobar when the Singapore market for gold closes at 11.30 a.m” (9am Indian time), and that since India is one of the world’s largest importers of gold, “the contract is going to provide another avenue to source quality gold”.

The SGX is exclusively using the vaults of Brinks Singapore as the official vault for the contract’s 1kg gold bars. In Singapore, Brinks have a vaulting facility in the free port of Singapore.

Four international banks that are members of the SBMA will act as market makers for the new gold contract and these banks need to guarantee availability of 1 kg gold bars in order to provide the liquidity to allow the new contract to work as designed. These banks are JP Morgan, the Bank of Nova Scotia, Standard Chartered Bank, and Standard Bank.

Since the SGX 1kg gold contract is traded on the Exchange and is regulated, it will be interesting to see the published trading statistics from the Exchange once the gold contract product is up and running and the volume of 1kg bars that these four bullion banks are providing to the Brinks vault in Singapore.

New Hong Kong Gold Contract

The US based CME Group who run the Comex gold futures exchange in New York and also host the new LBMA Silver Price auction in London have also announced plans for a new 1kg gold product in Hong Kong.

The CME’s new Hong Kong 1kg product is a US dollar denominated gold futures contract. It will trade on the Comex in New York and not in Hong Kong, but it will be settled and deliverable in Hong Kong at exchange-approved vaults. This is significantly different to the SGX physically
deliverable 1kg gold contract in Singapore.

There are still not many details released about the CME’s Hong Kong gold futures contract, but it will primarily be a cash settled contract for 99.99% fine 1kg gold bars, and is designed for global market participants who want to arbitrage and hedge risk between the New York or London gold prices and the Hong Kong regional price.

Last Thursday, the CME announced that three vault providers have applied to be approved vaults for the gold kilo contract. These are Via Mat Management AG, Brinks Global Services USA, and HKIA Precious Metals Depository Ltd.

Via Mat, Brinks and HKIA all have vaulting facilities in Hong Kong.

The contract specifications, such as contract size and trading hours have not yet been released but it’s thought that the CME’s Hong Kong contract will be structured similarly to the CME’s existing 100-ounce COMEX gold futures contract that trades in New York.

MARKET UPDATE

Today’s AM fix was USD 1,234.75, EUR 955.62 and GBP 759.43 per ounce.

Friday’s AM fix was USD 1,237.25, EUR 957.11 and GBP 760.87 per ounce.

Gold in USD – 5 Years (Thomson Reuters)

Gold fell $11.40 or 0.92% to $1,230.70 per ounce and silver slid $0.06 or 0.32% to $18.65 per ounce on Friday. Last week, gold and silver were both down 3% and 2.86%.

Gold recovered from Friday’s low in Asian trading this morning, ending in Singapore near $1233, before continuing the recovery in London trading. Silver is trading in London at $18.58, essentially unchanged from Friday’s New York close.

Precious metal trading will this week be predominantly affected by the upcoming US Fed FOMC meeting scheduled for tomorrow and Wednesday.

The Platinum price has recovered slightly today, rising 0.51% to $1371. Palladium is also stronger, up 1.93% at $845.

See the Essential Guide To Storing Gold In Singapore (Click link)