Hong Kong - Market Introduction

Hong Kong - Market Introduction

Markets | Jewellery | Who's Who
Introduction

The former British colony, which was returned to China in 1997, has long been a major regional gold market and jewellery manufacturing centre. Gold trading dates from the foundation of the Gold and Silver Exchange Company in 1910, which changed its name in 1918 to the Chinese Gold & Silver Exchange Society. The society was effectively the world's first gold trading exchange.

From 1947-74 strict sterling area foreign exchange controls limited gold trading in Hong Kong to 945 fine industrial metal, causing bullion imports to be diverted to the neighbouring Portuguese colony of Macau, whence they arrived back in Hong Kong unofficially.

With liberalisation in 1974, Hong Kong quickly became a significant centre in round-the-world, round-the-clock gold trading. Huge volumes on the exchange attracted international bullion houses to establish a parallel market in loco London gold during Hong Kong's trading hours. They took advantage of the arbitrage between a Hong Kong price quoted in Hong Kong dollars per tael (1 tael = 1.2 oz/37.43 gr) and the London price in US dollars per ounce. The international bullion banks do not trade on the exchange itself, but operate more as wholesalers, dealing in lots of 2,000-4,000 ounces at a time. This alliance between local Chinese traders and the bullion banks made Hong Kong the pacesetter of the early morning gold price.

Hong Kong is also a physical re-export centre for both tael bars and kilobars, particularly into mainland China, and also to India, Thailand, Taiwan and Vietnam, although nowadays these countries rely increasingly on direct imports. Hong Kong imports (or re-exports to the international market) now reflect flows into, and sometimes from, China, depending on the prevailing Chinese price.

The range of tael bars made by King Fook for the Hong Kong gold market
(Credit: courtesy King Fook Finance Co. Ltd)

Hong Kong imports reached a record 460 tonnes (14.8 million oz) in 1988, but were more normally 200-300 tonnes (6.4-9.6 million oz) during the 1990s. However, official figures fell to scarcely 120 tonnes (3.9 million oz) in 1999, and by 2001 had dropped to below 100 tonnes (around 3 million oz).

Hong Kong used to be a major jewellery manufacturing centre, using between 80-100 tonnes (2.6-3.2 million oz) in the 1990s. According to GFMS data, though, manufacturing of jewellery has been in decline since 1997, both on the back of lower local demand and the shift of fabrication facilities to the mainland, in particular Shenzhen.

For more information on gold trading and arbitrage, see Robert Sitt, The Hong Kong Gold Market in our Gold Library.