This Could Be A Revolution in Gold

Very interesting news out of Asia this week. Regarding some significant changes potentially afoot in the gold market.

Specifically, in the way the gold price is calculated.

Local media reports that Asian trading hub Singapore is getting ready to launch its own gold futures contract. Giving Asian investors a homegrown way to invest and speculate in the bullion market.

This would be a major change for investors in the region. Who currently rely on the so-called “London fix” spot gold price–and gold futures prices on New York’s COMEX exchange–to gauge trading patterns in this market.

That pricing system however, has become somewhat disconnected from the realities of global gold buying. Which today is driven largely by purchases in top-consuming nations like China, India and Thailand.

The Singapore Exchange is therefore looking to change things. Introducing a local Asian gold price–one that will accurately reflect buying and selling in this part of the world.

The shift could have some notable effects on Eastern bullion buying. Currently, London gold price fixes happen when Asian markets are closed, making it difficult for traders here to react to price changes. But if a “local price” now becomes available in Singapore, that could change. Giving Asian traders more dexterity.

That in turn could bring more buyers into the market. Enticing people who currently see gold as a “Western thing” to buy bullion futures locally. Thus increasing the total volume of purchases in the region.

Of course, we’ll have to see how the new contract is received. The Singapore Exchange tried a similar move in 2010–but later shelved the gold futures contract because of lack of interest.

Attempts to create similar gold trading products in China have also met with mixed results. With many investors remaining skeptical of the transparency in these markets, following trading irregularities being found in places like Hong Kong.

But Singapore might be different this time around. Especially with lower prices potentially making gold an attractive investment for buyers in the region. We’ll see if the new contract boosts overall buying.

Here’s to thinking local and acting global,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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