Hong Kong seems to be aggressively making final preparations before launching its new gold clearing system scheduled for this July.
In preparation, at least 4 of the 11 major banks involved in this system have started importing large-scale gold bars into the city.
Here are the important things you need to know about this Asian gold hub ‘war’:
Why is Hong Kong Bringing in Giant-Size Gold?
These banks have reportedly received large orders to bring in 400-ounce gold bars that meet the London Good Delivery industry standard.
For those who don’t know, these mega-sized 400-ounce bars are usually used by giant banks and central banks in London (the world’s largest gold trading hub). The Asian market has previously been dominated by kilobars. Banks in Hong Kong need to build up a strong physical inventory (stock) now to ensure the physical delivery process runs smoothly when the clearing system starts next month.
The Race to the Top: Hong Kong vs Singapore
Hong Kong’s quick launch of the system in July gave it a first-mover advantage to become Asia’s leading gold trading hub.
Singapore is also not one to be outdone and has just announced plans to launch its own mechanism by the end of the year. Both countries are vying to monopolize the huge demand for gold in Asia, where many investors see the precious metal as a safe haven asset.
What is Hong Kong’s current status of preparations?
Final Phase: A spokesperson for the Hong Kong Financial Services Bureau and Treasury confirmed that the clearing house is working closely with industry players to set up the framework, and preparations are now in the final phase.
Bank Involvement: A total of 11 banks are on the board of the Hong Kong Precious Metals Central Clearing Co. Some banks will continue to act as clearing banks once launched, while others will take time to increase their gold holding capacity.
Future Strategy: Hong Kong is starting with the London Good Delivery standard, while Singapore plans to support both.
Conclusion for Gold Investors: Although gold prices have previously recorded declines due to inflation concerns and high interest rates due to the Middle East war, long-term demand for gold in Asia remains strong. This competition between Hong Kong and Singapore will certainly further boost the liquidity of the physical gold market in our region!
