Hong Kong eyes growth in gold trading amid global shifts

Hong Kong is positioning itself as a global gold trading hub to diversify its financial landscape and capitalize on the precious metal’s enduring appeal as a safe-haven investment. This move, announced by Chief Executive John Lee Ka-chiu, comes at a time of heightened geopolitical tensions and growing global demand for gold as a reserve asset.

As China Daily highlights, gold has long served as “a key safe-haven investment and an important anchor in the precious metals category.”

Beyond its value as jewelry and coins, it plays a critical role in reserve assets and financial trading, enabling investors to manage risk through spot and futures contracts.

Hong Kong’s Legislative Council member Tan Yueheng sees the initiative as a strategic opportunity to strengthen the city’s position as a comprehensive financial center.

Tan notes that while Hong Kong has robust stock, bond, and currency markets, its commodity trading sector remains underdeveloped. Expanding the city’s role in gold trading could attract investors and position Hong Kong as a critical node in the global gold market.

A cornerstone of the plan involves expanding the Hong Kong International Airport (HKIA) Precious Metals Depository.

The facility’s current capacity of 150 metric tons will be increased to 200 tons initially, with a long-term goal of reaching 1,000 tons. This expansion is expected to enhance services like insurance, testing, certification, and logistics, creating a comprehensive ecosystem for gold trading and storage.

Joseph Chan Ho-lim, Undersecretary for Financial Services and the Treasury, stated that the initiative would enable “comprehensive multicurrency trading, clearing, and delivery,” bolstering Hong Kong’s regulatory framework and integrating advanced financial technologies.

Global demand for gold has surged amid concerns over geopolitical stability.

According to the World Gold Council, central banks purchased 1,037 tons of gold in 2022, the second-largest annual acquisition on record.

Many central banks, wary of over-reliance on the U.S. dollar, continue to increase their gold reserves. In a recent survey, 29% of central banks planned further purchases within the next year, citing rising inflation and financial market uncertainties.

Goldman Sachs has projected that gold prices could soar to $3,000 per troy ounce by the end of 2024, driven by growing concerns over U.S. debt sustainability.

Hong Kong’s open and tax-friendly financial environment makes it an attractive hub for investors seeking geographic diversification of their gold assets.

Vivian Cheung Kar-fay, acting CEO of the Airport Authority, noted that Hong Kong’s secure storage facilities have seen heightened interest in recent years.

The city’s proximity to major gold consumption markets like mainland China and India strengthens its strategic position. Financial Secretary Paul Chan Mo-po added that turnover of 99% pure gold on the Chinese Gold and Silver Exchange has achieved an 18% annual growth rate over the past decade.

To address logistical challenges, Tan suggested building internationally recognized warehouses and collaborating with mainland institutions like the Shanghai Gold Exchange.

Fang Zhou, of the One Country Two Systems Research Institute, emphasized the importance of complementing mainland futures markets and proposed creating a special cooperation zone near the Hong Kong-Shenzhen border to facilitate physical delivery.

As geopolitical uncertainties drive up demand for gold, Hong Kong’s initiative could cement its status as a global gold trading hub. By leveraging its strategic location and financial infrastructure, the city aims to establish itself as a key player in the international gold market. MDT/China Daily

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