Singapore Exchange to launch physically backed gold contract

Signage for the SGX Centre, which houses the Singapore Exchange Ltd headquarters.
Bryan van der Beek | Bloomberg | Getty Images

The Singapore Exchange said on Wednesday it will launch a physically deliverable gold contract to meet demand in Asia, the top consumer of the precious metal.

The contract, expected to be launched in September, is the first wholesale 25 kilobar gold contract to be offered globally and comprises a series of six daily contracts, the company said in a statement.

"SGX's market place 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," Muthukrishnan Ramaswami, president of SGX said in a statement.

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The contract will introduce centralized trading and clearing of a physically-delivered gold contract in Singapore.

The contract launch is also seen as a step by Singapore to provide a viable price benchmark in the region.

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The current price benchmark for gold is the so-called London 'fix', which is determined by a group of four banks over a teleconference. The process has come under intense scrutiny after regulators in Europe and the United States started to probe benchmarks in several markets following the Libor manipulation case in 2012.

China and India account for more than half of global gold consumption, but Asia still largely relies on the London fix for reference. The fix is set twice daily, at 1030 and 1500 London time, both of which are after Asian markets close.

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Singapore has been seeking to make the city-state a precious metals trading hub. In 2012, it scrapped sales tax for investment-grade gold, and has since seen many banks open up gold vaults here. Swiss refiner Metalor will officially launch the country's first precious metals refinery later this week.

The city-state had earlier planned to start a fix similar to the one in London, but decided against it as banks were reluctant to participate in a process that has drawn regulatory scrutiny, sources told Reuters earlier this year.

Bullion banks JP Morgan, Standard Chartered, Standard Bank and Bank of Nova Scotia are supporting the contract launch, according to the statement.