New silver trading platform to lift HK's hub

The Chinese Gold & Silver Exchange Society, or CGSE, a leading physical gold marketplace in Asia, plans to launch a silver trading platform in Hong Kong in the first quarter of 2013 to bolster the city's precious metals trading hub status.

The new "Loco Hong Kong Silver Contract" will be denominated in Hong Kong dollar, and the contact size will be at least 10 kilograms. The minimum delivery unit will be 30 kilograms. An airport-based precious metals vault at the Hong Kong International Airport will be the accredited depository that would facilitate the physical delivery of silver. A new CGSE subsidiary would be set up to act as the new central clearing house of the silver trading contacts.

The CGSE said that it would consider launching yuan-denominated silver trading later under this new platform.

The precious metals trading society expected the trading platform to facilitate silver trading on an average of around 2 million to 3 million ounces per day in the first six months after the launch; and it predicted the silver price to reach $40 per ounce in the first half of 2013.

"As another precious metal besides gold, we envisage that the new platform would elicit demand from institutional investors to hedge or arbitrage," CGSE President Haywood Cheung said in the first Annual CGSE International (Silver) Conference held on Wednesday.

"Silver price movement in the future has the potential of outperforming gold and that is why it is attractive to institutional investors," Cheung added.

Gold price as at November 14 fetched $1,725 per ounce, or 9.8 percent higher compared to the price at the end of 2011. Silver's performance in the same period was better as the precious metal stood at $32.56 per ounce, or 15.4 percent higher than at the end of 2011.

"The silver price upward trend is impressive this year and we expect it may reach $45 per ounce in 2013, as investors are accumulating silver to hedge against the US dollar's depreciation amid the various monetary quantitative easing programs," Plotio Bullion (Hong Kong) Research Director Bruce Wong told China Daily.

The CGSE will invite five accredited assays to act as the liquidity providers to facilitate smooth trading under the new silver trading platform. President Cheung said that the invited assays will feel attracted to join because the platform can bring many clients to them. Moreover, credit risks in the trading process can be spared as the platform can provide clearing services.

The CGSE is a self-regulated precious metals trading society established in 1910 that consists of 171 member firms; 30 of which are bullion group members. The CGSE launched the "renminbi Kilobar Gold Contract" trading platform in 2011 that facilitated gold trading in the yuan currency for the first time in the city.

However, CGSE President Cheung said that the market response toward the platform is not satisfactory, as the daily transaction value is hovering around 2 to 3 billion yuan, which is less than the expected 5 to 8 billion yuan daily average.

"This may be due to the limited yuan currency volatility that crimps the potential of making profit through arbitrage. Moreover, the limited availability of yuan currency loans in Hong Kong also prevents institutional investors from obtaining yuan-denominated line of credit easily for trading," Cheung added.

oswald@chinadailyhk.com