Singapore is set to announce the launch of a gold futures contract on Wednesday, two sources familiar with the matter said, joining a race in Asia to provide a viable alternative to the metal's global benchmark which is under regulatory scrutiny.
The physically settled contract will trade on the Singapore Exchange. This and other planned contracts in Hong Kong and China could cut Asian reliance on gold's spot price benchmark in London and futures bellwether in New York.
"Having a local price for local markets ensures that markets are more efficient and that the price accurately reflects where the metal is locally trading," said Ruth Crowell, chief executive of industry group London Bullion Market Association.
"As more markets develop, local prices for precious metals will become more tailored."
The Singapore Exchange did not respond to phone calls or an email seeking comment.
The price benchmark for gold is the so-called London 'fix', determined by a group of four banks over a teleconference. The process has drawn attention recently, after regulators in Europe and the United States started to probe benchmarks in several markets following the Libor manipulation case in 2012.
China and India account for more than half of global gold consumption but Asia still largely relies on the London fix for reference. The fix is set twice daily, at 1030 and 1500 London time - both much after Asian markets close.
Asia's fast-growing consumption of gold in recent years and ambitions by countries such as China and Singapore to be trading hubs have led them to explore providing benchmarks. The recent scrutiny of the London fix and accusations of manipulation have accelerated the process in Asia.
China, the world's biggest producer and consumer of gold, is set to launch three physical gold contracts in an upcoming international exchange in Shanghai's pilot free trade zone. It is also looking to launch gold derivatives later.
CME Group Inc, the world's No.1 futures exchange, plans to launch a physically deliverable gold futures contract in Asia, most likely in Hong Kong, sources familiar with the matter told Reuters in April.
While the Asian contracts may help set local benchmarks, their influence in global markets may be quite limited unless they can garner enough liquidity to match or overtake trading volumes in London and New York.
CME's COMEX gold contract is the most-traded bullion futures contract with 2013 volumes nearly four times higher than the second-biggest gold contract, on the Shanghai Futures Exchange, according to Thomson Reuters GFMS.
Liquidity in Asia has been a problem, with the Hong Kong Mercantile Exchange - which used to trade gold and silver futures - shutting down last year, partly because of low volumes. Regulators later found suspected irregularities in the firm's operations.
In 2010, the Singapore Exchange launched a gold contract but later pulled it on weak investor appetite.
"If you need a price discovery function, then COMEX serves us pretty well," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. "The fact is the liquidity is there and not in the local exchanges."
China has the best chance among Asian nations of having an impact on global gold pricing as it already has well-established physical and futures markets though it still needs to open up the markets to foreign players, say traders.
"As the Chinese market becomes bigger and it opens up to foreign players some more, it might end up completing the troika with London and New York," said one trader in Hong Kong.