Bank of China to become first Asian institution to join LBMA gold price auction

The Bank of China will be included in gold’s benchmark electronic auction process, according to the London Bullion Market Association (LBMA). The institution will now become the eighth to participate in the new electronic-based LBMA Gold Price.

Head of commodity strategy at Saxo Bank Ole Hansen said the move was an important step for China that will help the nation solidify its global importance in the gold market. He also noted that people should not start underestimating gold’s importance in London.

The new benchmark that was set in April to replace the almost one hundred year-old gold London Gold Fix.

The Chinese institution will now stand in line with Barclays Bank, Goldman Sachs International, HSBC Bank USA NA, JP Morgan, Societe Generale, The Bank of Nova Scotia - ScotiaMocatta and UBS.

China has never played a major role in the global gold fixing despite being the world’s largest gold producer and consumer, said Yu Sun, general manager, Bank of China London Branch & CEO, Bank of China (UK) Limited. 

"Bank of China’s direct participation in the gold auction would reinforce the connection between the Chinese domestic market and overseas markets, make the international gold price better reflect the supply and demand in China, and help to promote the internationalization of the Chinese gold market.”

As Kitco News reports, China has been an important player in the gold market, especially since 2013 when the biggest drop in gold prices spurred unprecedented demand in Asia. Physical demand in the yellow metal has declined since its peak in 2014. However, analysts predict that it will continue to grow as wealth throughout the country rises.

In the first quarter of 2015, consumer demand for the yellow metal in China was 272.9 tonnes, down 7% from 293.8 tonnes seen in the first quarter of 2015. At the same time, consumption was well above the five-year average of 231.9 tonnes.