China yesterday announced the launch of a yuan-denominated gold benchmark price that will be derived twice a day from a 1 kg-contract for metal of 99.99% purity traded by 18 participants on the Shanghai Gold Exchange (SGE). The members in the price fixing process include China’s four largest state-owned banks, local divisions of Standard Chartered and ANZ, as well as jewellery retailers and gold miners.

The country, which has emerged as one of the largest importers and consumers of gold, as well as a significant producer in this millennium, thus aims to strengthen its influence in the global bullion market and consolidate its position as a regional leader.

Yesterday the yuan morning fix was set at 256.92 yuan per gram (US$1,234.49 per oz), while the London fix was US$1,234.30 per oz.

Speaking at the launch of the benchmark, Pan Gongsheng, deputy governor of the People’s Bank of China said, “The Shanghai gold benchmark will provide a fair and tradable yuan-denominated gold fix price ... will help improve yuan pricing mechanism and promote internationalisation of the Chinese gold market.”

Analysts say that local companies may begin using the price immediately, but that overseas players may continue to follow the London standard. It will take time and further reforms in the market mechanisms, before the new benchmark is more widely accepted, they add.

It may be recalled that the London price is now determined by an electronic auction system. The older mechanism of setting the price through teleconferencing between selected banks was shut down in 2015 to ensure more transparency following allegations of manipulation in the then existing procedure.