China's #1 Bank Aims for London Gold Market Maker

CHINA'S biggest bank, ICBC – the world's #1 bank by market cap – aims to become Asian's first market maker in London's wholesale Gold Market, center of global bullion dealing.

Industrial and Commercial Bank of China Ltd is also aiming to join recognized investment exchanges worldwide, including Gold Futures exchange the Comex in New York.

"We hope to play a bigger role in the global precious metals market and become a major market maker, like Barclays," Reuters quotes Shen Shisheng, vice-general manager of financial markets at ICBC, speaking to the newswire at a conference in Shanghai.

ICBC became a full member of the London Gold Market in November 2011, when it was accepted as an Ordinary Member of trade association the London Bullion Market Association.

Over eighty years after Britain abandoned the Gold Standard, London remains the heart of the global Gold Market, despite the UK having no domestic mine ouput, little consumer demand, and no refining capacity for the large Good Delivery bars which wholesale dealers trade.

Instead, London retains the right timezone, financial and metallurgical expertise, and physical infrastructure – notably the Bank of England's vaults, used by London's market makers – to act as clearing house for the world's wholesale silver and Gold Market.

Average daily turnover in London's Gold Market – where participants deal directly with each other, trading "over the counter" contracts rather than through a formal trading exchange such as the Comex or NYSE – exceeds $240 billion, according to a 2011 study by the London Bullion Market Association. That's almost 10 times the value traded through US Gold Futures on average.

Merrill Lynch was the most recent addition to London's Gold Market makers, joining the 10 existing market-making members in January 2011. All of those banks undertake to quote firm buy and sell prices throughout London hours for gold and silver. Six of the market-making banks offer the full range of contracts, from Spot Gold (for two-day settlement) to forwards (for physical delivery at an agreed point in the future) and options (where the buyer has the right, but not the obligation to proceed with a purchase or sale in future).

"We now have banking operations in 34 countries and we need to expand our gold services and products to other major markets," Shen told Reuters on Tuesday, adding that ICBC has begun quoting prices for gold and Gold Futures on the Shanghai Gold Exchange, and is now acting as an agent for non-member users of the SGE.

Formerly #2 for physical gold demand each year, and already world #1 for Gold Mining output, China has in fact overtaken India for private consumption since September 2011 according to data compiled for Gold Market development organization the World Gold Council.

Working with the World Gold Council, ICBC's Gold Accumulation savings plan – launched in December 2010 – has already amassed two million account holders. Between them they own some $1 billion in physical gold, vaulted by ICBC in China.

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