Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

On most days, the price of gold is decided before Asian traders have even had their breakfast. Benchmarks have already been shaped in London’s over-the-counter market and New York’s futures market, a structure that has defined global gold pricing for decades. As the price of gold soars, Hong Kong is now moving to claim a larger role in the trade.

The Hong Kong government recently established Hong Kong Precious Metals Central Clearing, a fully public sector-owned company that will start operating on a trial basis this year. This push to build out Hong Kong’s bullion infrastructure, which includes expanding vault capacity, setting up a centralised precious metals clearing entity and closer links with the Shanghai Gold Exchange, will give the city a real chance at becoming a regional hub.

Hong Kong’s move builds on last year’s launch of the Shanghai Gold Exchange’s first offshore vault and renminbi-denominated gold contracts in the city. That earlier step created physical delivery points and renminbi-settled trading outside the mainland, lowering barriers to international investors. Taken together with the latest plan, the measures could reduce settlement frictions, attract larger capital flows into the region’s gold market and lower funding costs for Chinese miners, boosting investor confidence in the sector. 

That matters because China is the world’s largest gold producer and consumer, and its mining companies are expanding overseas, often financed through Hong Kong’s equity market. Shares of Chinese gold miners have surged over the past year; among the largest groups, Zijin Mining’s stock is up more than 150 per cent. Part of the rally reflects higher gold prices, which have meant stronger earnings and higher production targets as well as renewed dealmaking. Over the past month, the rally reflects hopes that Hong Kong’s push will improve capital access and boost China’s influence across the gold value chain. 

Still, infrastructure does not automatically translate into earnings. As long as the dollar underpins global commodity trade, London and New York will remain at the centre of global gold pricing. Yet Hong Kong does not need to catch up to other financial centres. Even a modest share of Asian settlement flows would be enough to consolidate its role in Asia’s gold trade and reinforce its position as a funding centre for Chinese miners.

june.yoon@ft.com