CME Announces Plans to Launch Physically Settled Asian Gold Futures Exchange

CMEWhile many precious metals blogs and investors have proclaimed an imminent COMEX default since 2008, we have long maintained that the COMEX is more likely to fade into irrelevance than to outright default on gold or silver bullion as physical Asian demand would facilitate the development of physical exchanges in the east.  
It appears that the CME decision makers have seen the light and agree with us, as Reuters reports this morning that the CME plans to launch a physically settled gold futures exchange…in Asia. 


As Reuters reports:

CME Group Inc plans to launch a physically deliverable gold futures contract in Asia, three sources familiar with the matter said, as the world’s No.1 futures exchange targets rising hedging and investor demand in the top gold-consuming region.

An Asian contract from CME could help set a pricing reference for gold futures in Asia, much like its U.S. COMEX gold contract sets the benchmark for bullion futures globally.

The exchange will reportedly launch in either Singapore or Hong Kong, and will trade gold futures which can be physically settled in 1-kilo gold bars (note that a kilo is 32.15 troy oz, and not 35.3 oz as reported incorrectly by Reuters):

CME is most likely to launch the gold contract in Hong Kong, with Singapore also an option, two sources briefed on the matter said, adding the contract is likely to be launched this year.

A third source, a market maker, said CME was looking to launch a 1 kilogram (35.3 ounces) contract.

The CME appears to be targeting the market currently dominated by the Shanghai Futures Exchange, along with Jim Sinclair’s new exchange, the Singapore Mercantile Exchange:

CME’s U.S. futures are 100-ounce contracts which are too big for Asian clients, the trader said. They are still the most liquid gold futures in the world.

The most-traded Asian gold futures contract currently is the one on the Shanghai Futures Exchange, which is a 1 kilogram contract. But it is closed to foreign investors.

CME’s Asian gold contract could be the first among its biggest rivals, who have already been boosting their regional commodities operations.

IntercontinentalExchange Group last year announced the acquisition of Singapore Mercantile Exchange, while Hong Kong Exchanges and Clearing Ltd, owner of the London Metals Exchange, said this week it was entering the Chinese commodities derivatives market.

The writing is on the wall. The days of the Western dominated paper gold and silver markets are numbered.