KUALA LUMPUR (Oct 4, 2013): Malaysia will start trading gold futures on Monday as part of plans to strengthen and deepen the capital market, said Bursa Malaysia Derivatives Bhd CEO Chong Kim Seng.
The exchange will debut with a ringgit-denominated gold futures contract, which will be available to all market participants. It will be cash-settled based upon the London AM Fix price in US dollars.
The contract will be traded in small contract sizes of 100 grams, enabling investors to trade in small quantities, making each transaction affordable to all who want to trade gold whether as a professional or the public at large.
“In Malaysia, where gold is a highly desirable commodity from a cultural standpoint, the minimum contract size of 100 grams for Bursa’s gold futures contracts provides greater accessibility and affordability to all those who want to trade and invest in gold,” said Chong during the launch of the new gold futures contract yesterday.
He added that gold jewellers, manufacturers and stockists are anticipated to be active users of the gold futures contract to hedge their gold inventory risks and their forward gold purchases, while the ringgit denomination minimises the risks associated with foreign currency fluctuations.
“Gold prices are volatile and will increasingly be more volatile. It can be a bane or a boon (to investors) depending on how well it is approached. Businesses would need to be more pre-emptive in managing price risks from the increased price volatility,” he said.
Chong said the gold futures contract is a transparent and more capital efficient way of trading through leveraged margin trading by requiring only 5% to 10% of contract value.
The contracts have expiry dates and contract months are the current month, next three months and any February, April, June, August, October and December falling within a 12-month period beginning with the current month.
“Our clearing house guarantees all open trades. We are regulated by the Securities Commission (SC) under the Finance Ministry. All our futures brokers are similarly licensed and regulated by the exchange and the SC,” said Chong.
He noted that complaints by retail investors on questionable gold investment schemes where a lot of investments and savings have been lost, reflect active retail interest in gold investing and trading.
Supplier of Swiss PAMP gold MKS Precious Metals Sdn Bhd country manager Joseph Ng expects global gold prices to hover at the US$1,450 per ounce level and ease off by year-end to as low as US$1,250 per ounce.
Ng said gold investment in Malaysia by individuals is usually in the form of actual physical gold bullion bars and gold investment accounts.
According to the Statistics Department, Malaysia exported RM4.7 billion worth of finished jewellery and imported RM5.99 billion worth of gold bullion in non-monetary terms during the first six months of this year, an increase of 6.5% and 3.6% respectively from a year ago.
“We estimate that for this year, the Malaysian gold bullion import will exceed RM12 billion and export of finished jewelries will hit RM8 billion given the lower international gold prices since April 22 this year.
“At today’s local gold price RM142,000 per kg, the estimated gold import and finished jewelleries export will amount to 84.5 tonnes and 26.3 tonnes respectively,” said Ng.
Federation of Goldsmiths and Jewellers Associations of Malaysia president Datuk Ng Yih Pyng deems the introduction of the gold futures contract as positive for the industry.
“The association views such contract positively as it allows market players to hedge their gold positions, especially in this volatile market. It also introduces an additional and a well-regulated platform for the investment fraternity to have their positions in gold,” said Ng, who is also group managing director of Tomei Consolidated Bhd.
“The launch of gold futures trading will provide Poh Kong with an additional avenue to mitigate the risks inherent in the fluctuating gold prices, more so as the volatility in gold prices is getting very severe lately,” said the federation’s deputy president and Poh Kong Holdings Bhd executive director Ermin Siow.