Hong Kong Mercantile Exchange's 1 Kilo Gold Contract To End Comex Gold Futures Trading (And "Bang The Close") Monopoly

Tyler Durden's picture

30 years ago, Bunker Hunt, while trying to demand delivery for virtually every single silver bar in existence, and getting caught in the middle of a series of margin hikes (sound familiar), accused the Comex (as well as the CFTC and the CBOT) of changing the rules in the middle of the game (and was not too happy about it). Whether or not this allegation is valid is open to debate. We do know that "testimony would reveal that nine of the 23 Comex board members held
short contracts on 38,000,000 ounces of silver. With their 1.88 billion
dollar collective interest in having the price go down, it is easy to
see why Bunker did not view them as objective." One wonders how many short positions current Comex board members have on now. Yet by dint of being a monopoly, the Comex had and has free reign to do as it pleases: after all, where can futures investors go? Nowhere... at least until now. In precisely 9 days, on May 18, the Hong Kong Mercantile exchange will finally offer an alternative to the Comex and its alleged attempts at perpetual precious metals manipulation.

From Commodity Online:

The Hong Kong Mercantile Exchange (HKMEx) has received authorisation from the Securities and Futures Commission and will make its trading debut on May 18, 2011 with the 1-kilo gold futures contract offered in US dollars with physical delivery in Hong Kong.

The ATS authorisation grants HKMEx the right to offer market participants, through its member firms, the use of its state-of-the-art electronic platform to trade commodities. The Exchange will begin trading with at least 16 members including some of the world’s largest financial institutions as well as several well-established brokerages in Hong Kong.

“We are very excited about this historic day. It allows us to establish a liquid and vibrant international commodities exchange based in Hong Kong, linking China with the rest of Asia and the world,” said Barry Cheung, chairman of HKMEx. “Global demand for core commodities has in recent years been driven by Asia, especially China and India. However, market participants in the region have had to rely on Western exchanges for price discovery, bearing the basis risk exposure in the process. Our new platform will offer Asia a bigger say in setting global commodity prices. It will also enable market participants to more actively manage their risk exposures, using products tailored to Asian market needs.”

HKMEx’s broking members at launch include BOCI Securities Ltd, Celestial Commodities Ltd, CES Capital International Co. Ltd, Chief Commodities Ltd, ICBC International Futures Ltd, Interactive Brokers LLC, KGI Futures (Hong Kong) Ltd, MF Global Hong Kong Ltd, Morgan Stanley Hong Kong Securities Ltd, OSK Futures Hong Kong Ltd, Phillip Commodities (HK) Ltd, Tanrich Futures Ltd and TG Securities Ltd. Its three clearing members are Interactive Brokers (UK) Ltd, MF Global UK Ltd and Morgan Stanley & Co International Plc.

And while the Chinese market is far more bubbly when it comes to gold and silver purchases, it remains to be seen just how happy a gambling addicted Chinese population will take to spurious and conveniently timed margin hikes that take the air out of the next parabolic move up in gold and silver (our guess is not very).

Far more importantly, the Comex monopoly appears to be over, and going forward the exchange will have to be far more sensitive about angering broad swaths of the population using 5 consecutive margin hikes in 9 days. The new exchange will also make the now traditional "banging the close" operation (or "banging the whatever" as the May 1 15% drop from $49 to $42 in minutes demonstrated) obsolete, as traders will have options of where to route orders from the hours of 0800 HKT to 2300 HKT.

Bottom line: if Chinese demand for gold and silver is as strong as it was a week ago, and it is, the recent Comex-directed plunge in precious metals is about to the BTFDed.

From the HKMex:

HKMEx is introducing a 32 troy ounce gold futures contract useable by a wide range of market participants to execute hedging, arbitrage and other investing strategies. Moreover, the HKMEx gold futures contract has the following important characteristics designed to meet the needs of a marketplace which lacks an international price-setting mechanism in the Asian time zone:

    * Secure physical delivery in Hong Kong meeting international standards
    * Trading execution on an advanced and robust electronic platform
    * World-class clearing functionality
    * Extended Asian day trading hours to tap into global market liquidity
    * Contract specifications tailored to market participants in Asia

Gold is one of the world’s most important and actively traded commodities. Demand for the metal is driven by three main factors: the jewellery market, industrial manufacturing and financial investment. In addition, gold is relatively unique in that it is used as both a commodity and a monetary asset.

Although gold has a long trading history in Asia, the majority of price formation for gold is today concentrated in the North American and European markets. In recent years, the introduction of gold futures trading in Asia has tapped into latent trading demand that is primarily driven by strong economic development in China and India.

Hong Kong is historically one of the world’s leading gold centres and has a natural geographical advantage in Asia. Hong Kong’s vibrant financial infrastructure ensures access to leading market participants and deep regional and international pools of liquidity.

Trading hours for the HKMEx gold contract will extend from 0800 HKT to 2300 HKT, opening with TOCOM in Japan and encompassing the London Bullion Market Association AM Fixing, the opening of COMEX, and the LBMA PM Fixing. The HKMEx opening auction will run from 0730 to 0800.

While gold futures trading on Asian exchanges has demonstrated significant growth, there is currently no contract that is or will likely become a regional benchmark contract for gold pricing. Without a regional benchmark, true price discovery for gold is either confined to the local in-country market or must depend on the European or North American markets. In-country markets generally restrict foreign participation and often subject it to adverse currency restrictions or tax treatment. Meanwhile, global benchmark pricing from the western hemisphere provides imperfect hedging for Asia’s trading community.

HKMEx is well positioned to address the demand of Asia’s trading community for the establishment of a gold futures contract as the regional benchmark.

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WmMcK's picture

Competition, bitchez!

DoChenRollingBearing's picture

+ $1490

At long last we have more competition in the PM markets.  The more the merrier.  Probably less manipulation is the icing on this cake.  Bravo Hong Kong.

I would guess that the PMs may indeed have a nice big run-up soon.

jkruffin's picture

They could be just trying to join in on the corruption, and get their piece of the manipulation pie. I wouldn't celebrate this move too soon, because alot of ugliness in the markets is about to occur.  Like they say, if you can't beat em', join em'. Stocks and bonds are the next to take the 20% dive.

DoChenRollingBearing's picture

That of course is very possible.  But, typically when there are more players in the game, it often means the game is cleaner overall.

That's for you traders.

I'll just take the physical, thanks.

Wooly's picture

"...The Exchange will begin trading with at least 16 members including some of the world’s largest financial institutions..."

Probably not "more players" just the same old ones in a different time zone. I fail to see how this changes the game to any great degree. 

RockyRacoon's picture

Yeah.  There are some familiar names in that group... especially the last one shown on the list... also showing up in the middle of the list.

Just another playground in my view.   Soak up the West's ready cash, run the system into the ground, then move East and do it again.

Manthong's picture

Keep in mind that Bejing is China's front door, and Hong Kong is the side entrance or maybe the garage.

ED's picture

Was originallyfor oil, apparently. Both touchy subjects, anyways

Kopfjager's picture

I don't know about you guys but I prefer the back door.  Pandas and all bitchez!

Ben Fleeced's picture

It's getting hot. Turn up the heat.


Cathartes Aura's picture


the "same old players" may still be holding the strings, but the spin on the story just opened wide. . . everybody tells themselves a different story, depending on what their intended next moves requires them to believe in/act on, and now more stories (and conspiracies") will be told, as the game intensifies going forward.

a tangled web. . .

Thomas's picture

I would argue that maybe the newest entrants to the game had a vested interest in making the aging exchange look bad. Nice timing in the least.

Tim White's picture

   Key word= AUTHORIZATION...back to sleep, bitchez, all will be well.

zhandax's picture

Precisely.  It remains to be seen whether China is directing this effort or the Rothschilds are re-opening their old summer home.

gorillaonyourback's picture

yes i see its to chinas advantage to manipulate the prices lower too.  if china does want to buy gold and silver wouldn't you think its in their best interest to manipulate the prices lower and get as much cheep gold and silver as possible?

tmosley's picture

Thing is, you can't do that without supplying actual physical.  If they are throwing physical metal at the market to keep the price down, then they defeat the purpose.  If they just wanted the price down, they would leave the status quo as is.  It seems to me that they know something big is about to happen, and want the markets to continue to function without the need for relying on Western exchanges.

nope-1004's picture

Yes, they have been buying gold and silver like crazy.  Turd had someone post something to that effect a while ago, claiming massive physical buying by them.

The more hands that are in the pot, the better the chance that true price discovery will be attained.


old naughty's picture

@jkruffin  ++

G2 con-spired, joined in the hips.

The 0.1% is setting up the 20(less0.1)% while the 80% looking on. Expanded horizon.

Strange just got stranger...

SilverTech's picture

IMO they see an opportunity for an honest PM market to supplant the CRIMEX.

Die COMEX, Die. Pound a silver stake into the heart of the vampire.

Rynak's picture

Was about time that a big player steps in to offer some diversification. While it remains to be seen how hong kong will behave much different, decentralization works against central manipulation... it may not prevent it, but certainly makes it more difficult.

Re-Discovery's picture

This is nothing more than the asia saying "stop that white boys shit."  And, by the way, if you try to print our treasury holdings into oblivion, our REAL PM market will check that shit in about 1 trading session.

WizDumb's picture

mutually assured destrution...

onesoul's picture

Not sure if anyone know, they are introducing Yuan denominated Gold Contract in Hong Kong CGSE very soon(Say next month on end of March).


You see, Hong Kong is financially controlled by bankers(international and locals) and their friends(Regulators). So don't trust Hong Kong untill you can see the difference.

But, politically, China has a lot of influence these days and they are laying some ground work for Gold(1st) and Silver(later) market in Yuan. Before they decide to execute them, and until the trading volume pick up and a clear divergence b/w price on COMEX vs HKMEx and CGSE, gold and silver may still be subjected CRIMEX manipulation. It can takes months or years until these 2 markets divergence.

I believe it is Chinese call if they need a frontal assault by introducing Yuan based PM contract now or wait until later. I believe they don't want to play this card, just yet.

TGR's picture

PM's are traded and denominated in RMB in China (via the Shanghai exchange) anyway, so introduction of a yuan-denominated gold contract in HK would not make too much difference in the grand scheme in my opinion.

But you are right about the bankster-grip on Hong Kong. HSBC, Standard Chartered and Bank of China are the ones who physically print and supply Hong Kong dollars. Oh, and guess who just happens to be sitting on the monetary authority board of HK? Yes, it includes representatives from a couple of these entities, including a couple of gweilos/laowais (white guys, not just your stereotyped Hong Kong locals). Cosy.

As gold is traded in HKD in Hong Kong, long-term the HKD will reconcile with the RMB/CNY anyhow - that has long been the accepted non-written agreement between the lines - so should the USD drop considerably, and the RMB revalues considerably, the HKD (and associated gold trading in HKD) would align itself more with the yuan as opposed to struggling in its de facto managed range peg with the USD.

Non Passaran's picture

Since the Yuan is tied to the dollar, why would Yuan-based PM contract be of special interest?

Keri at Bankster Report's picture

I don't know anything about Asian markets, but I do know that 1kg gold contracts have been selling on the Shanghai Futures Exchange for 3 or 4 years.  The roll of the SFE played on copper is, of course, very notable and the SFE loosened some of the grip of the LME's control of local prices in China (pre-yuan peg).

The SFE contracts are yuan denominated, but this new KongMEX will be in HK$, right?  Could this be a clue?  HK$ is still under a rather strict dollar peg, is it not?  While Yuan is appreciating this year, HK$ is not...

Forex confuses me: please correct me if I'm wrong.  What would the HK$ peg mean at KongMEX in a face-off with $ at COMEX and yuan at the SFE for an event, like for example, an increase in gold price in USD terms?  The price would go up on COMEX and HK in paired tandem and moved less rapidly or possibly hold still at the SFE in yuan (depending on the appreciate rate), right?  If so, does this look like a dollar hedge scheme for the Chinese to anyone else?  I'm working on a very low caffiene-blood level, so I hope I'm thinking this through correctly...

gorillaonyourback's picture

wow interesting thought, dollar peged yuan at start of new hk exchange.  china has been telling its citizens to buy and store gold, right?  maybe buy as many new gold ounces as possible with as little usd as possible, because the article did say that gold will be settled in dollars.  if the hong kong market pays a little more every day for gold than the crimex, maybe a massive shift of physical gold to the hong market?  they will be paying a little more right? where ever in the world i live i get a higher price in hong kong, physical gold will be flowing there.  now here is the dirty part when china under this scenario gets all the gold it wants, they UNPEG the yuan. we will never get the gold back after that

Non Passaran's picture

If you can get more $ for toz in HK, then you could buy in London (AM fix) and sell in Hong Kong. I don't know if AM fix would be "underpriced" day after day since that would mean free money.  I'd agree with TD (if I understand him correctly) that the main effect is that price of gold could get better support throughout the day.

old naughty's picture

The 1-kilo gold future is offered in USD. They use London's LCH.Clearnet as clearing house. And they counted China's ICBC and Cosco Group as well as Russia's En+ Group as shareholders.


Yuan denominated will come later this year. http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cb... btw, HKMEx President Albert Helmig was from NYMEX. http://www.hkmerc.com/documents/Press_Release/HKMEx_-_Albert_Helmig_-_Ap...

bonddude's picture

Hopefully beginning of the end for the Morgue.

Kopfjager's picture

Wait, would this suggest that the "smart money" currently in PM's will shift to Hong Kong's exchange?  I assume it could shift without taking a loss even at its current levels since the smart money was "priced in" months if not years ago. 

Or nothing would change at all since the price is universal and Hong Kong would uptick milliseconds after COMEX downticks?  I made a few words up, you're welcome.  

Help me out here.  

Mr Lennon Hendrix's picture

Rockefeller must be spinning in his grave.

shinyindallas's picture

Well let's attach some rare earth magnet to the old boy and get him generating some clean energy. This could be the next clean power bubble. Someone call Leo.

DoChenRollingBearing's picture

Neodymium and Dysprosium, bitchez!

Richard Chesler's picture

Meet the new crooks. Same as the old crooks...

Tim White's picture

   Boss, criminal, creep, fuckwad, all the same...Thanks , Who!!!

Math Man's picture

ETFs, bitchez!

The futures market lead the plunge, but ETFs keep it going!

People aren't focusing enough on the role that SLV and the commodity ETFs had in the silver move.

When they catch on, it's going to be really fucking ugly for Gold.   There may be an PM ETF bubble more than anything.

SLV bought 366 million ounces of silver since '06, but bought nearly 20% of it during the run!

It then proceeded to sell 36mm ounces in around 2 weeks.  More than the 35mm Silver Eagles the US minted last year.

I don't know what the hell is going on in the commodities market and with DXY right now, but if doesn't stop, it will trigger ETF selling and force gold to be arbed out of GLD. And if that happens, watch the fuck out!

Gold got crushed in '08, and a lot of that was driven by GLD selling its Gold. I'm looking for the repeat.

Buy puts on GLD, bitchez. 

Tim White's picture

   Speaking of fuckwads...

Bay of Pigs's picture

You have no idea what you're talking about concerning physical gold and silver demand. Everyone knows GLD and SLV are bankster frauds, so give it a rest. Nobody believes a thing you say around here.

Math Man's picture

Yeah, I know, I was so wrong on silver that I made multiples more buying puts than any of you idiots made buying silver. 

Ignore me at your own risk.

If you really think they are frauds then buy puts, bitchez!

You can buy even MORE physical with the proceeds.

But I guess none of you are smart enough to figure that out.

slow_roast's picture

How could you possibly have made more money buying Puts in silver when it only dropped ~$15 than I did buying Calls when it ran up to nearly $50 after dropping to the mid-$20s just a few months ago?  Hmmm....I'm starting to understand why everyone calls you methman.  Clearly math is a toughie for you.

rocker's picture

Hope is not working well for him, I say.

eisley79's picture

i am not on his side, but the answer to your question could only be leverage, I am assuming he is implying he went all in and then some on his beliefs...

XPolemic's picture

Yeah, I know, I was so wrong on silver that I made multiples more buying puts than any of you idiots made buying silver. 

Yes, but then Mommy woke you up and it was time to get ready for school.

Crisismode's picture

No, Mommy woke him up for his diaper change.

tmosley's picture

Bullshit.  You weren't right.  You were betting on one side of a volatility spread like a fucking moron.  You were bearish at $34, which was flat out wrong and stupid.  You only got lucky that you picked options as a strategy rather than going leveraged short.

You never even fucking knew what you were talking about.  ANYONE could make money playing volatility in silver.  EVERYONE knows it is volatile as shit.  Even I knew that, and expressed it publicly.  The only reason I don't ply it myself is because I am nice and secure with my own lifeboat, and see no need to spend any more time looting the Titanic.  You don't even see the water rising.  As such, when the ship slips beneath the waves for the final time, your ass will never be seen again.

Go fuck yourself, troll.

Math Man's picture

The only one who doesn't know what they are talking about is you, Tmo.

You only got lucky that you picked options as a strategy rather than going leveraged short.

Options are a way to lever a short position, you stupid fuck.