Shanghai Gold Exchange: The Chinese Gold Bourse

Shanghai Gold Exchange

Shanghai has been the economical capital of China, and the second Mecca for East-Asian investors. If China wants to create a gold market, Shanghai is the ultimate location for such a bourse.

To begin, Shanghai is most populace city, in the most populous country in the world. It lies on the mouth of the Yangtze River, the longest in Asia and the most notable one. It started as a fishing village that grew exceptionally to become what it is now, New York of Mainland China. It became the favorable port for the Europeans in the 19th century, and the city flourished even more. Shanghai was the perfect location for establishing a gold exchange market in East-Asia to facilitate gold transactions in the area on Chinese terms.

The People’s Bank of China (PBC) founded the precious metal exchange market in 2002 under the name of Shanghai Gold Exchange (SGE). It is a non-profit and a self managing entity under the supervision of PBC. The supervision is not a direct one as membership in the SGE can only be obtained through the PBC and with its approval. The PBC approved registering foreign banks as members in SGE. As the name implies, it focuses mainly on gold exchanges, plus other precious metals such as silver and platinum. It is a gold spot market that serves China, and Chinese trade partners. In May 2010, SGE planned to offer its members gold Exchange-traded Funds (ETFs).

In May 2008, the China Banking Regulatory Commission (CBRC) allowed issuing permits for Chinese commercial banks to trade gold futures in Shanghai Futures Exchange (SHEF). Commercial banks have to register in both exchange markets; the SGE and SHEF to conduct their gold futures trading. Commercials banks and corporations licensed to produce, smelt, process, wholesale, import and export precious metals and precious metals products are members of SGE. They trade in gold of 99.99 and 99.95 purity, the most popular in Asia. The Standard weight of gold bullions and coins traded in SGE ranges from 50 grams, 100 grams, 100 grams, 1 kilo-bar and 3 kilo-bar. They are traded in Yuan/gram, unlike the American Chicago Mercantile Exchange (CME) which deals with gold in ounces. Gold trading in SGE start from 10:00 PM to 11:30 PM EDT, then resumes from 1:30 AM to 3:30 AM EDT.

SGE members have to register in the PBC, have a complete organizational and financial management system, 5 million Chinese Yuan capital and no severe law violations for the past three years. There are three types of memberships: Financial, General and Principle memberships. Principal members are allowed to conduct their own self business only while the general and financial members are allowed to act as agents, plus carrying out their own self business.

To sum up, China established a gold exchange market in Shanghai, in an attempt to enter this demanding industry. Let’s not forget that China now is the world top producer of gold, and the second largest consumer after India. The SGE is well established to have foreign banks but on Chinese terms. Their rules and regulations are not strict as the other gold exchange markets. There is a catch though, whoever wants to enter the SGE have know the Chinese legalization and paper works inside-out. Corporations have to register in the PBC, and have its approval in order to conduct business in the next potential world largest Gold Exchange market.