china to launch interbank gold market

This from the FT on 19/07/12;

China to launch interbank gold market

China is set to launch interbank gold trading at the end of next month amid a broader set of banking reforms, in a move that has the potential to boost demand for bullion in the world’s largest consumer.
A spokesman for the Shanghai Gold Exchange confirmed that the exchange “has this plan” to create an interbank gold market and was working with other government agencies to do so, but declined to disclose details of how the new market would function.
Interbank gold trading would be an incremental step in China’s broader banking liberalisation, which aims to modernise the country’s banking sector and includes recent moves such as giving banks more freedom to set deposit and lending rates.
“This will be a good thing?.?.?.?to add a new trading method and make it easier for banks to trade gold between themselves,” said Gu Wenshuo, spokesman for the Shanghai Gold Exchange. The exchange will announce more details in August, he added.
China is the world’s largest bullion market, accounting for a quarter of global demand in the first quarter of this year, according to the World Gold Council, and strong consumer demand for gold has been driven by the lack of other investment options in the country’s closed capital market.
At present banks are not allowed to trade bullion, or any precious metals, directly with each other and can only buy gold domestically through the Shanghai Gold Exchange or the Shanghai Futures Exchange. However, about three weeks ago the exchange and other financial institutions circulated a draft of new regulations for interbank gold trading to solicit comments from commercial banks, according to a metals trader at a large Chinese bank.


The new trading channel for banks is likely to increase trading volumes, but it is too soon to tell how big its impact will be on overall bullion demand, this person added. “They’re doing this to make the [gold] market more active,” said the trader. “Trading volumes should increase a bit, but it’s hard to say how much.”
China is the world’s biggest consumer of many metals, including copper, lead and gold. But Chinese commodity exchanges complain that they are prevented from playing their rightful role in global commodities trading because of China’s closed capital account and slow pace of financial reform.
In an effort to raise China’s profile in global trading, the Shanghai Futures Market will launch the country’s first dual-currency commodity futures contract, for crude oil, later this year. The contract will be open to foreign traders through a quota system that will set an upper limit on their positions.
Additional reporting by Gwen Chen in Beijing