China grants gold import licenses to foreign banks for first time: sources

January 16, 2014 Leave a comment

China grants gold import licenses to foreign banks for first time: sources

Wednesday, Jan 15, 2014

Reuters

SINGAPORE/SHANGHAI – China has granted licenses to import gold to two foreign banks for the first time, sources said, as moves to open the world’s biggest physical bullion market gather pace.Allowing more banks to import gold could increase the supply of the metal into the country, easing local prices that are higher than in most Asian nations.

China’s gold imports more than doubled last year to over 1,000 tonnes – ousting India as the biggest buyer – as demand soared to unprecedented levels due to the first drop in international prices in 13 years.

ANZ (ANZ.AX) and HSBC (HSBA.L) were awarded import licenses late last year, two sources with direct knowledge of the matter told Reuters.

Other trading sources said China Everbright Bank (601818.SS) has also received approval to join the nine local banks already allowed to ship gold into China. Beijing strictly controls how much the banks import through a quota system.

ANZ and HSBC declined to comment. Everbright could not immediately be reached for comment.

“China is actually increasing its transparency. I think there will possibly be further access to other banks as well,” said Cameron Alexander, manager of Asian precious metals demand at metals consultancy GFMS, which is owned by Thomson Reuters.

China faced a supply crunch early in 2013 when a sharp plunge in gold prices released pent up demand that eroded inventories at banks and jewelry sellers.

Premiums in China tend to be higher as supply is tighter than other parts of Asia due to the quota system and the limited number of import licenses.

Premiums are currently about US$15 an ounce over London prices, compared to less than US$2 (S$2.50) in Singapore and Hong Kong. They rose to a record high of US$30 in April-May last year.

China imported 1,060 tonnes of gold from Hong Kong in the first 11 months of 2013. Beijing does not release gold trade data, so numbers from Hong Kong – the main conduit for gold – provide the best estimate on imports.

But traders warned the award of the new licenses did not necessarily mean imports would jump sharply from 2013’s record volumes, as the level of demand would be the main factor driving shipments. But they added that the move indicated appetite for gold would likely be strong.

ANZ and HSBC were in 2011 also the first two foreign banks to get the green light to trade gold futures on the Shanghai Futures Exchange.

ANZ is the only foreign bank on the list of 10 most-active members by volume on the Shanghai Gold Exchange, the physical trading platform in China.

STRING OF CHANGES

The granting of new licenses is the latest in a string of steps by China to ease restrictions on bullion trading and boost market accessibility.

China approved its first gold-backed exchange-traded funds last year and extended trading hours on the futures exchange.

The central bank issued a draft policy document in September that proposed letting more banks import and export gold.

The move also comes as the SGE plans to launch gold futures in the city’s pilot free trade zone this year that would be open to foreign investors.

“China will need to allow more foreign players into the physical gold market if it’s planning to have foreign investors participate on its gold futures,” said one of the sources.

“This is the first step that the regulators are taking to ensure that its gold futures contract in the free-trade zone can take off.”

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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