SHANGHAI: China, the world’s top bullion producer and consumer, launched its first gold options contract on the Shanghai Futures Exchange on Dec 20, adding to an array of investment options for the yellow metal that saw prices hit six-year highs this year.
Gold prices globally have gained about 15% so far this year and are set for its strongest annual increase since 2010, as global growth concerns and uncertainties over the US-China trade war boosted its appeal as a safe-haven metal.
Shanghai Futures Exchange’s most-traded gold futures contract for February 2020 delivery, which rose to its highest in six years in September, was up 0.3% at 335.72 yuan (US$47.90) per gram on Dec 20.
The exchange’s most active April month 2020 gold options contract for exercise price of 336 yuan per tonne had a call option at 9.14 yuan per tonne and put option at 7.80 yuan per tonne on Dec 20 afternoon.
In commodity derivatives trading, options give the buyer the right, but not obligation, to buy or sell a futures position at a specified price.
“In deepening China’s financial structural reform, gold options are an effective supplement to gold futures, which will meet the needs of physical enterprises and help improve market risk management,” said Jiang Yan, chairman of the Shanghai Futures Exchange at the contract launch event.
The exchange appointed 14 market makers to create liquidity for the contract, including Shandong Zhaojin Investment Co, a unit of China’s fourth largest gold miner Shandong Zhaojin Group, and CITIC Securities Co, China’s biggest brokerage firm.
Chinese demand for gold has increased over the past decade, surpassing India as the world’s top consumer in 2014, as its demographic grew wealthier.
Open interest in Shanghai’s gold futures contract has also gained over the years, with volumes hitting record highs of over 350,000 contracts in August. They have since decreased, but are still holding around 190,000 contracts, twice the volumes five years ago.
The Shanghai Gold Exchange had also launched an international trading platform in China’s Shanghai Free Trade Zone in 2014 to encourage market participation from foreign investors.
“Entities that have this demand (for a gold options contract) include companies in the entire industrial chain of gold, because it is convenient for risk management,” said Zhang Yongtao, secretary-general of the China Gold Association. – Reuters