HSBC has won approval to join the Shanghai Futures Exchange, becoming the first foreign bank to gain access to China’s gold futures market.
The announcement came on Friday, a day when the gold price hit an all-time high of $1,632.30 per troy ounce as investors panicked about the continued stalemate over negotiations to raise the US debt ceiling ahead of the August 2 deadline.
David Liao, managing director, treasurer and head of global markets at HSBC China, said the bank will initially focus on gold futures trading. “China is an important producer, user and investor of gold [and] we look forward to playing a greater contributing role in the development of China’s fast-rising gold market, where we see vast growth potential,” he added.
In May, the Hong Kong Mercantile Exchange started trading its first gold futures and intends to offer renminbi-denominated gold futures by the end of the year. But, although Hong Kong has a gold vault buried under the international airport on Lantau Island and is a major channel for gold flow into China, Chinese investors are not allowed to trade futures offshore.
China and India are the two biggest buyers of the precious metal, which has experienced strong demand since the onset of the global crisis in 2008. Stock market slumps in the first quarter of 2009 and the start of the Greek debt crisis in the second quarter of 2010 prompted especially rapid surges in the gold price. In nominal terms it has risen 10% during the past month, but is still well below the 1980 peak, which Citigroup says was about $2,300 in real terms.
HSBC China already trades spot gold on the Shanghai Gold Exchange, which it joined in February 2008, and is now one of the most active foreign bank players in China’s gold spot market. The lender is also the biggest international bank operating in the mainland, with 109 outlets comprising 24 branches and 85 sub-branches.
In addition to market making, HSBC provides “a full suite of services”, including lending, overdraft and deposit-taking. The group is also a custodian of major gold exchange-traded funds.