Shanghai Gold Exchange to Expand Warehouse Network to Hong Kong

A Twenty kilogram gold brick Photographer: David Gray/Bloomberg Photo by David Gray /Bloomberg

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(Bloomberg) — The Shanghai Gold Exchange plans to expand its warehouse network to Hong Kong, helping to raise the profile of its yuan-denominated products, including for the precious metal, beyond mainland China.

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The new vault will be operated by a subsidiary of Bank of China Ltd., according to people familiar with the matter, who requested not to be identified as the information is private. The timeline for the move is not yet clear, they added. At present, there are two such warehouses in Shanghai, plus a third in Shenzhen, just across the border from Hong Kong. 

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The People’s Bank of China said last month it supported such a move, without providing a location. The central bank indicated the initiative would promote yuan-denominated benchmarks for the Shanghai Gold Exchange’s products, reflecting Beijing’s push to exercise more influence over commodity pricing.

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A representative at the exchange declined to comment. Bank of China didn’t immediately respond to a request for comment.

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The global gold market has been the focus of intense investor interest in recent quarters, with prices rallying to successive records as the US-led trade war spurred demand for havens. That theme has been playing out in China — the largest gold consumer — with record volumes seen on the Shanghai Futures Exchange amid heavy retail buying. Bullion’s advance has also been aided by central-bank accumulation, including by the PBOC.

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The Shanghai Gold Exchange, founded in 2002, is China’s primary platform for physical gold trading. It introduced offshore bullion trading priced in the yuan through a so-called international board in 2014, which was followed by the debut of a yuan-priced gold benchmark. The Shanghai Futures Exchange, meanwhile, handles futures contacts for metals, energy and other commodities.

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The gold exchange’s new vault will be part of the network that international clients use to manage bullion trading and storage.

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The move dovetails with Hong Kong’s ambition to bolster its presence in commodity markets. Earlier this year, the London Metal Exchange, which trades base metals like copper and aluminum, approved the former British colony as a warehouse location.

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