Singapore will study the possibility of bringing the gold benchmark pricing in London to users in Asia, in a move that would also allow market participants in the world's top consuming region to help set the price of bullion.
Home to the world's biggest buyers China and India, Asia's importance has been on the rise as the key source of demand for gold, but bullion traders in the region are often exposed to intraday price volatility and overnight foreign exchange risks with benchmark prices currently being set out of London.
The Singapore Bullion Market Association, London Bullion Market Association and Intercontinental Exchange Benchmark Administration (IBA) will launch a joint feasibility study on the development of "LBMA pre-AM gold price at 2 pm Singapore time", Lim Hng Kiang, minister for trade and industry and deputy chairman of the Monetary Authority of Singapore, told an industry conference on Monday.
The study "is an important first step towards establishing a U.S. dollar price discovery mechanism for gold during Asian business hours," said Lim. "When in place, it will facilitate the timely tracking of Asian demand and allow participants in Asia to settle their trades within the same business day."
Singapore in January 2014 dropped plans to set a daily reference price for gold shortly after European regulators investigated manipulation of precious metals prices by banks.
In October that year, the Singapore Exchange launched a 25-kg wholesale gold contract targeting to create a regional benchmark, but the contract has failed to attract volumes, with zero activity in some months.
"We hope to make a reputable gold benchmark mechanism in London available to Asian users," the Singapore Bullion Market Association's chief executive, Albert Cheng, told Reuters.
Cheng said the feasibility study will be done until year end. "If there's enough interest, the IBA will consider launching it early next year," he said.
China launched a yuan-denominated gold benchmark in April this year in a bid to exert more control over pricing of the metal, but use of the benchmark even in China has yet to gain traction, traders say, many of whom still follow the dollar-denominated London pricing.
The London gold fix, previously set via a teleconference among banks and facing allegations of manipulation, was replaced in 2015 by electronic auctions, which take place twice daily.
The LBMA last week named Cinnober subsidiary Boat as the service provider for its new trade reporting platform, as it moves to boost transparency in the $5-trillion-a-year London gold market.
Transparency in the fixing process has come under scrutiny since a scandal broke in 2012 over the rigging of the London interbank offered rate, or Libor.
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