Hong Kong has begun trial operations of a new gold clearing and settlement system supported by several major banks.
The move is part of the city's efforts to emerge as a major gold bullion trading hub in Asia and have influence over global gold pricing.
Hong Kong Chief Executive John Lee said the system will form the basis for the formation of a gold reference rate that can be used in international trade.
The launch also gives Hong Kong the advantage of being among the first markets in Asia to develop such infrastructure.
However, competition is intensifying when Singapore also launched a similar initiative last month and aims to have a fully operational gold clearing system by the end of the year. Both financial centers are looking to capitalize on continued strong demand for gold among Asian investors.
Although gold prices have been under pressure since the beginning of the year due to conflicts in the Middle East, a strengthening US dollar and expectations of higher interest rates, the long-term outlook for the precious metal remains positive.
Several investment banks have lowered their short-term forecasts, but their year-end price targets are still above current levels. On Tuesday morning, spot gold prices were trading at nearly US$4,140 an ounce.
To support the launch of the new system, at least four of the 11 participating banks have increased their imports of 400-ounce gold bars to ensure sufficient supply for physical delivery.
The increased imports have pushed Hong Kong’s gold inflows above the two-year average.
Hong Kong has also invited several central banks, particularly from countries involved in the Belt and Road Initiative, to join the system.
The move is expected to strengthen Hong Kong’s position as a regional gold trading hub, while Singapore plans to introduce custodial services for central banks by October.
