Physical gold contract to be launched on SGX in September

Bars of gold at the German Federal Bank in Frankfurt am Main. Photo: AFP/Frank Rumpenhorst.

SINGAPORE: The world’s first exchange-traded, wholesale kilo gold contract will be created for the trade, clearing and physical delivery of the precious metal in Singapore, Minister for Trade and Industry Lim Hng Kiang announced on Wednesday (June 25).

Speaking at the LBMA Market Forum at Marina Bay Sands Convention Centre, Mr Lim said the contract is expected to launch on the Singapore Exchange (SGX) this September.

"What the bullion industry needs most is a vibrant and robust marketplace within the heart of Asia," he said, noting that the continent accounts for more than 60 per cent of global gold demand.

"This is a timely development given the increased requirements for reference prices to be transparent. With the SGX as the independent matching and clearing entity, this physically-settled contract will create a more transparent and efficient marketplace for kilo bar trades. The exchange will also act as a centralised clearing house to reduce settlement risk among multiple counterparties."

Echoing the sentiment, SGX President Muthukrishnan Ramaswami said in a statement published by Reuters that the move "will enable the trading and clearing of the Singapore kilobar gold contract and establish a fully transparent price discovery mechanism for gold in this region".

SGX said the contract will be the first wholesale 25 kilobar gold contract to be offered worldwide, and will consist of six daily contracts.

The World Gold Council, Singapore Bullion Market Association, SGX and four banks - JP Morgan, Scotia Bank, Standard Bank and Standard Chartered - are supporting the launch, Mr Lim said.

Singapore will continue to develop the physical and financial architecture for the gold market, the minister added.

"This is a wholesale, physical-settled exchange-traded contract for kilobar. It will satisfy the mid-tier, second-tier band, mid-tier bullion trader who want to have a source of kilobar at a price that they can see from the exchange. And then they can redistribute to their customer, or send it to jewellery manufacturer for them to make into jewellery," said Managing Director of the Far East/World Gold Council Albert Cheng.

Apart from architecture, gold benchmarks may also be created, so that trades need not be based on gold prices set elsewhere.

Said Chairman of the Singapore Bullion Market Association Ng Cheng Thye: "There is a need for the wholesale market to find a transparent pricing, as well as to be shared among the general communities here. Currently, what we see is that sticking to the retail price would mean so many failures in so many exchanges."

Four years ago, the Singapore Freeport was created for the storage and transit of valuable items. In October 2012, investment-grade gold, silver and platinum produced by accredited refiners were exempted from Goods and Services Tax. Later this week, Metalor of Switzerland will launch what will be the largest gold refinery in South-east Asia here.