IF SHANGHAI’S GOLD futures market is to take off, it will require greater participation by foreign investors than hitherto. That in turn will mean letting more foreign investors in to the physical market. Reuters reports the first signs of that, saying ANZ and HSBC have been granted the first gold bullion import licences to be given to foreign banks. The news agency attributes its intelligence to unnamed sources. Neither bank would comment on the report, but it gains credibility from the fact that the pair were the first two foreign banks allowed to trade gold futures on the Shanghai Futures Exchange.
The People’s Bank of China said last September that it would increase the number of bullion import licences. Expanding the number of banks able to import gold to 12 from the current nine (China Everbright is also said to have been given a license) would also ease the demand pressures on the metal. The government controls import volumes with quotas. Nonetheless, last year gold imports more than doubled to at least 1,060 tonnes. As a result, China displaced India as the world’s top gold importer.
The exact volume of imports is uncertain. China doesn’t make pubic the volume of its gold imports, so we have to rely on the export volume from Hong Kong, which is the source of most of the bullion entering China. That is the number quoted above.
The constraint on supply means that physical gold usually sells in China at a modest premium to the world price. That is currently $15 an ounce, down from the $30 an ounce it reached in April and May last year. The new licences, if confirmed, won’t make much of a dent in that, but this Bystander expects more new licences for foreign banks to follow.