The official debut of China’s gold futures ignited the new frenzy of speculation that may stir up international gold price.

By 9 o’clock on January 9th, gold futures contracts for June were finally offered in the Shanghai Futures Exchange (SFE). Minutes after their official debut, 7 contracts purchased climbed to the daily 10 percent limit before dropping back down a bit. By 10am, the key contract had attained 223.3 Yuan, up by 6.20%. Among those key contracts, AU0806 opened up at 230.95 Yuan, up by 9.98%, only 4 fens (cents) away from the daily ceiling price.

 

The first transaction was between two large gold producers, Zhongjin Gold Corporation and Jiangxi Copper Company. Affected by gold futures market, stocks of gold companies with already high opening prices went rocketing afterwards. Share price of Shangdong Gold Mining hit a record high of 239 yuan. 

 

China’s first 7 gold future contracts transacted at the benchmark price of 209.99 yuan per gram with a daily limit of 10%. Based on these figures, the upper limit would be 230.99 per gram with the lower limit at 188.99 per gram.

 

Taking the dollar-yuan exchange rate of 8^th of January at 7.2791, the benchmark price of Chinese gold futures would be 897.28 dollars per ounce, with an upper limit of 987.02 dollars per ounce. This benchmark price was the highest price in the international market. By contrast, on the same day, the price of gold in London reached 876.8 USD per ounce and COMEX gold futures reached 892 USD per ounce.

 

Driven by the launch of China gold futures, the prices of foreign gold futures surged up by 30 USD per ounce and even hit the record 880 USD January 8. Since the benchmark price of AU0806 was set at about 897 USD, the arbitrage opportunities had been created between China and international markets.

 

Chinese investors are concerned that they will be trapped by these elevated prices. International gold prices had been continually increasing even before China started to trade gold futures, which always increases the risk on this kind of investment. As international hot money could participate in the A-share market through various routes as well as in Chinese gold futures speculation, the Chinese market may greatly affect international prices.

 

Most analysts, however, believe that trading gold futures in China will not be a factor in forcing international gold prices to new highs. But John Reade, a metals analyst of UBS London office expressed, " I expect that, several years later, we will be surprised that Chinese investors are becoming the main trading group, just like that TOCOM was able to lead the gold market".