Hong Kong aims to build gold warehouse for China
By Polly Yam

HONG KONG, Feb 21 (Reuters) - Hong Kong may be about to build a bonded warehouse at its airport to store gold and make the Chinese territory a regional trading hub while feeding rising demand from mainland China, industry officials said on Tuesday.

The Chinese Gold and Silver Exchange Society, Hong Kong's sole spot gold market, has lobbied the government to set up the bonded warehouse for three years, a senior official with the industry body told Reuters.

"The time is probably mature," the official said, referring to speculation in the market that the government might make an announcement in the coming days.

Gold hit a 25-year high of $574.60 per ounce on Feb. 2, supported by crude oil prices. It had retreated to $551.20 by 0815 GMT on Tuesday.

The society has also lobbied Beijing to approve the new bonded warehouse in Hong Kong as a delivery site for trade on the Shanghai Gold Exchange -- the sole spot gold market in mainland China which, with India, is seen by the industry as the gold consumer with the most potential globally.

Approval of the warehouse plan might lift trade on the Shanghai exchange and China's imports as Chinese players theoretically can import the metal freely.

But that might not happen before Beijing allows its currency to be freely convertible because gold is seen as a form of currency and controlled rigidly by Beijing.

"China for the time being may not use the warehouse in Hong Kong because of the currency issue. It cannot control the yuan if it allows imports and exports freely," said an official at precious metals trading and refining firm Johnson Matthey.

Gold forms part of China's foreign exchange reserves. The country held 1,929 troy ounces of gold as of December 2005, according to the website of its central bank ( www.pbc.gov.cn ).

Hong Kong also faces competition as gold end-users in Shenzhen, China's jewellery manufacturing base, want Beijing to build a bonded warehouse to store gold in the southern boom town adjacent to Hong Kong.

"We are thinking of it. The warehouse does not have to be in Hong Kong, where costs are higher. Delivery from there will not be too convenient," said a manager for an exchange member that owns a jewellery maker in Shenzhen.

China's gold production rose 5.5 percent to 224.05 tonnes in 2005, according to the China Gold Association.

The country's consumer demand for gold rose 9 percent to 59.1 tonnes in July-September 2005. But Hong Kong saw a fall of 2 percent to 3.3 tonnes, according to the World Gold Council's quarterly report.

But industry officials and analysts in China estimate that the country's gold consumption was nearly 400 tonnes, or 12 percent of world supply, in 2004.

China imports 130 to 150 tonnes of gold and the bulk of that arrives through unofficial channels as Beijing allows only its central bank and four state-owned commercial lenders to import gold, to protect local producers.

Fabricators in Shenzhen city use up about 70 percent of Chinese gold imports, according to industry officials.

Gold exchange set to junk 96-year system
Winnie Pang
Hong Kong Standard
Tuesday, May 02, 2006

The Hong Kong bullion exchange plans to take advantage of rising gold prices by launching a long-awaited 24-hour electronic trading system by the middle of next year which it hopes will turn around its declining fortunes.

The 96-year-old Chinese Gold & Silver Exchange Society, which operates from 9am to 5pm, still uses the open-outcry system, where traders shout out offers and bids.

With the new system, the exchange hopes to boost trading volume to more than 200,000 taels per day - or about 10 times the current daily volume of 20,000 to 30,000 taels. A tael is a traditional Chinese measurement equal to 1.2 ounces

As recently as 1980, the exchange was trading an average of one million taels per day. But, according to exchange president Alvin Ching Man- kit, the market has been hit both by a two-decade slump in the demand for gold and rising competition from the London market.

"The trading houses and banks use the electronic trading system to allow customers to trade loco London gold 24 hours a day. With the new electronic system, we believe the bullion exchange can take back 60 percent of the loco London gold trading volume," Ching said.

He said this was "the right time" to invest HK$10 million to reform the exchange. "The gold market had been dormant for 18 years. Since I took up the position two years ago, the gold market started to rejuvenate," Ching said.

The market began its current upturn after gold touched US$255 (HK$1,989) per ounce in 1999.

Prodded by worries over the rising US deficit, gold started shooting up, along with other metals, in the second half of last year, hitting US$661.1 per ounce in Monday Tokyo trading - a new 25-year high. But while the market was flying, the exchange - often criticized for being slow to react - was not taking advantage of the bounty because of its antiquated system.

In 2004, then-exchange president Fung Chi-kin said he was lobbying for round-the-clock trading. But since the exchange is registered as a society, its members need to approve every change.

"The exchange is 96 years old, so it takes some time to persuade our members to change to the new system," Ching said.

"More than 60 percent of the members have approved the change now."

To help make the switch easier, the exchange plans, at some unspecified point, to change its status to limited company, allowing its leaders to institute reform without much input from members.

Meanwhile, Ching is confident the current reform will push through.

"Hopefully, by the end of 2006 the hardware and software of the trading system will be finalized, enabling us to use the new system by mid-2007."

Wednesday January 17, 6:38 PM
H.K. gold depository to operate before 2008: Airport Authority

(Kyodo) A precious metal depository will be open by the end of 2007 to meet growing regional demand for gold, the depository's owner, the Airport Authority, said Wednesday.

The precious metals depository will provide a central, secure storage facility for traders, institutional investors, gold producers and refineries, and serve as a physical settlement platform for bullion trades in local and Asian markets, the authority's statement said.

It said the depository will also minimize risk, and reduce settlement time, transportation and insurance costs for the industry.

"The depository will allow Hong Kong to act as a bridge between global gold producers and markets on the mainland," authority Chairman Victor Fung said in the statement. "The government's plan to waive declaration charges is the key to establishing the territory as a leading center of precious metals trading."

The authority said revenues will be generated through rentals of secure storage space in the depository, which will be around 300 square meters in area.

Depository opens door to HK as precious metals hub
3 September 2009
The Standard

Hong Kong moved another step closer to becoming the regional hub for gold and precious metals with the opening yesterday of the HKIA Precious Metalchs Depository.

Both the Hong Kong Monetary Authority and asset management firm Value Partners (0806) said they will move their gold reserves now stored in London vaults back to Hong Kong.

HKIA PMD _ a wholly owned subsidiary of the Hong Kong Airport Authority _ is also in talks with exchange-traded fund issuers, the Shanghai Stock Exchange and the Chinese Gold and Silver Exchange Society to offer storage and physical settlement services, according to the parties involved.

Raymond Lai Wing-chueng, HKAA executive director of finance and investment as well as director of HKIA PMD, confirmed that the depository is in talks with one ETF issuer and the Shanghai bourse. ``We now have about 10 clients since the `soft' opening two months ago, far better than expectations,'' Lai said.

Value Partners chairman Cheah Cheng Hye said he hopes shifting part of the firm's gold reserve to Hong Kong will help boost management efficiency and could lead to the launching of gold ETFs.

HKIA PMD yesterday signed an agreement with the Hong Kong Mercantile Exchange to provide storage and physical settlement services after the HKMEx is granted a license and starts operations. The depository also provides services to central banks, commodity exchanges' bullion banks, precious metal refineries, and ETF issuers, according to Lai. And it has plans to double its storage capacity in its 340-square-meter storage house to 300 tonnes, he added.

FS speaks at grand opening of HK International Airport Precious Metals Depository
Government Press Release

Following is the speech by the Financial Secretary, Mr John C Tsang, at the grand opening of the Precious Metals Depository cum Airport Authority Hong Kong and Hong Kong Mercantile Exchange Agreement signing ceremony at Hong Kong SkyCity Marriott Hotel this afternoon (September 2):

Marvin, Barry, distinguished guests, ladies and gentlemen,

Good afternoon.

It is a great pleasure for me to join you all this afternoon.

Today's ceremony marks an important step forward in strengthening Hong Kong's position as a competitive global financial centre.

I have just visited the Precious Metals Depository, and it is an impressive facility – sort of like our own Fort Knox. Precious metals, primarily gold, will be stored right here under the most secure conditions at one of the world's busiest airports. The gold can be moved quickly and safely to and from virtually anywhere in the world.

I look forward also to witnessing the signing ceremony between the Depository and the Hong Kong Mercantile Exchange in a few minutes. This Agreement will authorise the Depository to conduct storage and physical settlement activities for the Mercantile Exchange. It also paves the way for the launch of new financial products.

All this ties in with Government's policy to enhance Hong Kong's position as an international financial and logistics centre. The HKIA Depository will help to tap into opportunities from the growing demand for gold and other commodities in the region.

As a well-established international financial hub, Hong Kong already has a strong presence of international financial institutions; a regulatory regime that is on a par with international standards; markets that are characterised by a high degree of liquidity, efficiency and transparency; a simple and low tax regime; and the free flow of information, capital and people.

Ladies and gentlemen, today's opening of the Precious Metals Depository further strengthens our financial infrastructure, providing a convenient and secure storage facility for traders, institutional investors, gold producers and refineries. It also serves as a physical settlement platform for trades made in commodities exchanges in the region, and potentially other parts of the world.

Congratulations to everyone involved in this project.

Thank you.

Where and why we stockpile gold
15 September 2009
The Globe and Mail

Hong Kong is moving its gold holdings from London to a depository at the Hong Kong airport. Where do Canada and the United States keep their gold?

The Hong Kong Monetary Authority, which acts as the central bank for the region, has built a depository at Chek Lap Kok airport. It is moving its gold reserves there from London, and hopes the new facility will make Hong Kong a hub for trading gold.

Canada keeps its gold in a vault under the Bank of Canada building in Ottawa. But we don't have a lot, because the government sold off most of our reserves in the 1980s and 1990s. There are just over three tonnes of it left.

The United States has a lot more – about 8,130 tonnes – and the biggest depository is at the Federal Reserve Bank of New York's vault in Manhattan. The stockpile at Fort Knox, in Kentucky, is slightly smaller.

What is gold used for, aside from being held by central banks?

The metal has been less important as a financial reserve since the gold standard for currencies faded out in the 1970s. But it still reigns supreme as a material to make jewellery, and it is important in some electronic components because it conducts electricity efficiently.

Many investors buy it as a hedge against inflation, and a haven when markets are volatile.

Last week the price of gold reached $1,000 (U.S.) an ounce. Has it ever hit that mark before?

The price of gold first surpassed the $1,000 mark in March, 2008. But it didn't stay there for long. It touched $1,000 again briefly in February of this year.

Gold has run up strongly in recent weeks, and rose above the $1,000 mark last Tuesday, and again on Friday. It hovered right around the $1,000 mark for most of yesterday too. This has excited those gold bugs who regularly predict a huge gain for the metal.

Hong Kong Jan-Sept gold flow to China jumps

SINGAPORE, Nov 17 (Reuters) - The gold flow from Hong Kong to mainland China in the first nine months of the year more than doubled from a year earlier to 88.06 tonnes, the Hong Kong Census and Statistics Department said on its website (www.censtatd.gov.hk)

No official numbers exist on mainland Chinese imports.

On an annualised basis, this would translate into total exports of 117 tonnes for 2010, based on Reuters calculations.

Exports to the mainland in September fell about one percent from a month earlier to 14.79 tonnes, the data showed.

Hong Kong is Asia's largest bullion trading center and a main conduit for gold flows to the mainland.

INTERVIEW-UPDATE 1-Luk Fook banks on gold rush in China

HONG KONG, Dec 23 (Reuters) - Hong Kong jeweller Luk Fook Holdings (International) Ltd is speeding up its expansion in China's cities as increasingly rich Chinese snap up diamond rings, gold necklaces and ornaments.

Demand for precious metals, such as gold and silver, is fast rising in China as investors see it as a sign of wealth and a safe haven to hedge against inflation since the government is clamping down on speculation in volatile assets such as property.

China is now the world's second-largest gold consumer, ranking behind India, with jewellery made from the precious metal often worn at weddings and festive occasions.

"The pace of expansion has picked up in the past few years as demand for gold is increasing," Financial Officer and Executive Director Paul Law told Reuters in a telephone interview.

"Inflation is not expected to have an impact on the appetite for gold, especially among wealthy customers in China."

Luk Fook, the largest Hong Kong-listed gold ornament and jewellery distributor by market capitalisation, expects same stores sales to grow by an annual 15-20 percent for the fiscal second half ending March.

The jeweller, whose Chinese name means "Six Fortunes", also has plans to expand into lower-tier Chinese cities, increasing the number of licensed stores by 15 to 20 percent per year.

In top-tier cities, Luk Fook, which competes with rival Chow Sang Sang , Emperor Jewellery and Watch and privately-owned Chow Tai Fook Jewellery, also plans to open 10-20 self-operated stores per year.

By the end of September, Luk Fook had a total of 646 stores, with 607 in China, 31 in Hong Kong, and others in Macau, the United States and Canada.

SPARKLING CHINA DEMAND

China, which the World Gold Council forecasts will see gold demand double over the next decade, is expected to contribute to 30 percent of the revenues in 4-5 years, from 18 percent now, Law said.

Even though Hong Kong has fewer stores, the operations are usually much bigger with larger customer flows, therefore contributing more to Luk Fook's overall sales.

With a massive market of 1.3 billion people, Luk Fook sees little threat from more globally known brands, such as Tiffany & Co and LVMH , which is also expanding in China in hopes to dazzle consumers with their upscale jewellery.

"We don't see any direct impact from global brands such as Tiffany, as our focus is more on the mass market," Law said.

"However, we do see increasing demand for jewellery products, especially from younger customers, which will pick up to account for more than half our sales in few years."

Gold, now trading below a historical high of around $1,430 an ounce hit earlier in December, is popular with the Chinese who are constantly looking for investment opportunities for their wealth, especially with curbs on property speculation.

"Gold gives customers an investment option, another good reason to buy," Law said.

Luk Fook is now focusing on mainland China and Hong Kong, but will gradually make inroads to other markets. It recently opened a new store in San Francisco's Chinatown and plans to open a new store in Singapore in late December, Law said.

Luk Fook shares have more than tripled so far this year, outperforming a 5.6 percent rise in the Hang Seng Index . On Thursday, its shares fell 3.3 percent. (US$1=HK$7.75)

Hong Kong gold flow to mainland China more than doubled in 2010

Feb 22 (Reuters) - Gold flow from Hong Kong to mainland China in 2010 more than doubled on the year to 118.904 tonnes, the Hong Kong Census and Statistics Department said on its website (www.censtatd.gov.hk).

China does not publish gold trade data. In a rare revelation a senior industrial official said China's gold imports in the first ten months of 2010 increased nearly six-fold to 209.72 tonnes.