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[SINGAPORE] China plans to launch a yuan-denominated gold fix this year to be set through trading on an exchange, sources familiar with the matter said, as the world's second-biggest bullion consumer seeks to gain more say over the pricing of the precious metal.
The Chinese benchmark would be derived from a new 1 kg contract to be launched on the state-run Shanghai Gold Exchange, a senior source directly involved in the process told Reuters.
China, also the top producer of gold, feels its market weight should entitle it to be a price-setter for bullion and it is asserting itself at a time when the established benchmark, the century-old London fix, is under scrutiny because of alleged price-manipulation.
If the Chinese fix takes off, it could add to the pressure on the London benchmark, which is used worldwide by producers, refiners and central banks to price holdings and contracts, although the two could exist side-by-side. "We need a renminbi benchmark for Chinese producers and foreign suppliers to the market," said the source, using an alternative name for the yuan. "This renminbi gold benchmark can be complementary to the US dollar gold-fixing in London." The contract for the Chinese fix would be traded for a few minutes each day to make the process transparent - addressing one of the big complaints about the London fix - and the exchange would settle all trades, the source said.
One barrier to wider international acceptance is that the yuan is not fully convertible.
A second source with a global bullion bank said trading and settlement could be done in offshore yuan to allow foreign banks and other suppliers to participate, although only domestic players are expected to participate initially.
China has already made some efforts to liberalise the yuan and encourage foreign participation in its domestic markets, especially in bullion.
The Shanghai Gold Exchange, which has been at the forefront of China's pricing efforts, opened an international bourse in September 2014 in the city's pilot free-trade zone, allowing foreigners to trade yuan-denominated contracts for the first time.
It has also opened up silver contracts for foreign players and launched gold options on a trial basis.
China's efforts to gain bigger sway on pricing gained momentum last year, when regulatory scrutiny over the London gold fix increased amid allegations of manipulation of the benchmark, which is set through a teleconference between a handful of banks.
A push to make the London process more transparent and electronic has resulted in a new administrator and a revised format, which is set to go live next month.
A new Chinese fix may be one too many for foreign banks. "There are lots of compliance issues to deal with these days and I don't think any bank would be very enthusiastic about getting into another fix," the source with the bullion bank said.
Just this week, Switzerland's competition commission said it was looking into possible gold price manipulation, while the Wall Street Journal reported the US Department of Justice and the Commodity Futures Trading Commission were investigating at least 10 major banks for possible rigging of precious metals markets.
However, the fact that the Chinese price-setting would be done through an exchange could comfort some as it would be more transparent, the first source said. "There won't be any chance of malpractice on this platform," he said.
Others in Asia have also launched exchange-traded contracts recently with the aim of coming up with a price benchmark.
CME Group launched a physically deliverable gold futures contract in Hong Kong earlier this year, while the Singapore Exchange launched a 25 kg contract last year.