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ASEAN Bullion Market can Benefit Immensely from the Services of CGSE


Dr. Haywood Cheung, President of the Chinese Gold & Silver Exchange Society talks about background behind emergence of CGSE, the advantages of its products, CGSE’s future plan and many more in a candid interview with Bullion Bulletin. Excerpts…


CGSE will soon complete 100 years of service to the gold and silver industry. Congratulations! Briefly, take us through the history of CGSE.


As the sole exchange recognized by the Hong Kong government to trade physical gold and silver, the Chinese Gold and Silver Exchange Society (“CGSE”) has 107 years of history with 171 Members which are mostly banks, large-scale jewellery chain stores, gold fabricators and financial institutions, running on a membership-based system.


Inception of CGSE dates back to 1910 when it began to operate as the “Gold and Silver Exchange Company”. And in 1918, CGSE formally registered in the name of the Chinese Gold and Silver Exchange Society.


CGSE was established in wake of the thriving development of Hong Kong’s banking industry. In the formative years, CGSE was led by Hong Kong’s early local bankers. During the post-WWI era, trading of gold and silver fragments was a popular business. Then "cash counter" emerged. Money merchants gradually developed their trades by setting up "Yin Hao" (literally means Chinese private banks) which later transformed into modernized banks. Against this backdrop, CGSE was an outgrowth of the money industry in Hong Kong.


Since then, the home-grown exchange has developed and expanded continuously and becomes a thriving metals exchange with solid foundation and strong tradition.


For more than one hundred years, CGSE has adhered to a stringent and effective set of rules. Although constantly tested, the integrity of industry members is always upheld, and they play a vital role in Hong Kong's gold market.


CGSE provides local and international investors with a gold market of continuity, liquidity and depth, in which they can use gold as an instrument of investment, hedging and arbitrage.  


2 "CGSE is physical gold & silver exchange which combines both spot and future contract". It is very unique. How does CGSE manage to combine both the contracts? What is the benefit of the market participant?


CGSE is a physical gold &silver exchange which combines both spot and defer settlement contracts. In addition to delivery of physical metals, the trading parties can offer to pay premium to defer the contract delivery, thereby performing the function of futures market.


This unique trading mechanism is the brainchild which the dedicated founders of CGSE who put enormous efforts and resources to create some years ago. This trading mechanism has stood the test of time and operated smoothly and effectively in the past, and it is just as long lasting as gold.


CGSE runs a spot-based trading system under which Members shall abide by same-day delivery for contract transaction. However, CGSE has a premium mechanism to assist the trading parties to defer delivery on T+1, or even to defer the delivery indefinitely until the positions are closed out. Premium is determined openly in the market at 11:00 a.m. for 99 Tael Bar and 11:15 a.m. for Kilobar. At such times, Members wishing to settle spot gold can register their deals on board. The premium of the day is determined by reference to the supply of and demand for physical gold.                       


CGSE has several innovative products such as "RMB Kilobar" offshore gold contract, etc. Please elaborate on some of the key products in gold and silver and their functions?


For “RMB Kilobar”, from the name of this product we can see there are two innovative points.


Firstly, this product uses RMB as settlement unit. In the past, international gold products mostly use USD as settlement unit. After the release of “RMB Kilobar”, it attracts foreign traders to invest in RMB and it became a bridge of RMB internationalization.


Secondly, this product uses kilogram as measurement unit, but not troy ounce or tael. Nowadays, spot gold trading mainly uses kilogram as measurement unit over the world, including Chinese mainland. This helps the new product convergence to the world spot gold market without any conversion.


Apart of the “RMB Kilobar”, we have world popular Loco London Gold and Silver Contract, which uses USD as settlement unit and troyounce as measurement unit, to ingratiate investors all around the world.


In 2011, CGSE launched the world's first offshore RMB-denominated and RMB-settled gold product- "Renminbi Kilobar Gold" with the current transaction value of around RMB 20 billion to 30 billion on daily basis.


Also, we do have 999.9 Tael Gold Contract. 999.9 Tael Gold Contract uses HKD as settlement unit and tael as measurement unit, to drive the trading volume of local spot gold.


CGSE will be participating in a big way at the inaugural edition of the Asia Pacific Precious Metals Conference. What is the synergy CGSE sees in the APPMC and with SBMA?


The cooperation of CGSE and SBMA will facilitate the metals markets within Asia to be better connected, which will generate huge opportunities within the region, as both Hong Kong and Singapore are free trading markets and play critical roles in different markets.


As one of the few precious metal exchanges in the world which provide both open-outcry and electronic trading platforms, CGSE plays a vital role as a hub in the northern Asia gold trading marketing, despite it does have connections with Singapore, Japan (Tokyo Commodity Exchange, TOCOM) and Myanmar, etc..


And SBMA plays as an important hub in the southern Asia, connecting with Thailand,India, Indonesia, Philippine, and so on.


What is your core message to ASEAN bullion market participants? How can a bullion player in ASEAN region benefit from services of CGSE?


CGSE offers a marketplace and ancillary services to its members, and hopefully other more participants from ASEAN regions, to engage in various trading activities of precious metals such as gold and silver. Its current daily transaction value ranges from HK$100 billion to HK$120 billion.


ASEAN bullion market participants can benefit from the services of CGSE, in terms of its plentiful amount of gold and Hong Kong being a free exchange market with diversified financial products and high liquidity as well as the metal exchange being a bridge to Chinese mainland's gold market.


In 2015, CGSE officially set up its operation in Qianhai Free trade Zone by forming Shenzhen QIANHAI Chinese Gold & Silver Exchange Society Co, Ltd. The new unit of CGSE has already been granted approval by different mainland government departments and authorities to engage in gold and silver trading. CGSE has helped over 60 members to jumpstart their businesses in Qianhai. It also planned to construct a "customs territory bonded warehouse" with a storage capacity of 1,500 tones of gold in the free trade zone.


In the same year, CGSE jointly launched “Shanghai-Hong Kong Gold Connect” with Shanghai Gold Exchange.


In tandem with the national policy of Belt and Road Initiative, by the end of 2016, CGSE signed a memorandum of cooperation with Dubai Gold & Commodities Exchange (“DGCX”). In the first quarter of 2017, CGSE also signed a memorandum of cooperation with Hong Kong Myanmar Chamber Of Commerce in a bid to facilitate the future development of gold market in Dubai and Myanmar.


Moving forward, CGSE will continue to implement its missions of promoting the commoditization of gold and RMB internationalization through forging closer and further cooperation with gold exchanges and gold merchants in countries along the Belt and Road Initiative zone and mutual accreditation of precious metal products.



ASEAN bullion market participants, such as Jewellers who have business in Chinese mainland, can also trade the RMB-denominated and RMB-settled gold product- "Renminbi Kilobar Gold" based on their needs to hedge currency risk.

Disclaimer: Views are personal and not the views of the publisher.