Exchange Fund could buy more gold to boost trade

Chief Executive John Lee of Hong Kong is contemplating using funds from the Exchange Fund to acquire additional gold, aiming to enhance the city's role in gold trade and establish it as a global trading hub for the precious metal. The Exchange Fund, which functions as Hong Kong's de facto sovereign wealth fund, currently holds HK$134.7 billion in assets as of the first half of this year.

In his Policy Address, Lee highlighted that the Hong Kong Monetary Authority (HKMA), the city's unofficial central bank responsible for managing the fund, is contemplating expanding its gold reserves and engaging in local spot and futures markets. The HKMA is also contemplating a gradual transition of its physical gold holdings to designated vaults operated by the Hong Kong Precious Metals Central Clearing Company Limited (PMCC).

The PMCC is a government-owned entity that recently introduced a trial clearing and settlement system for gold in early July. In a Legislative Council meeting, Lee announced that the gold clearing and settlement system would commence official operations in the first quarter of next year, adding that a dedicated hotline would be established to provide comprehensive support for both mainland and overseas gold traders.

Other initiatives include allowing the Mandatory Provident Fund (MPF) Schemes Authority, which oversees local residents' pension funds, to diversify MPF investments into gold exchange-traded funds (ETFs). The government intends to encourage the sector to form a gold industry association and host a prominent event next year.

Regarding the broader commodity trading environment, Lee pointed out that Hong Kong is currently storing over 20,000 tonnes of metals in designated local warehouses, with the total storage area surpassing 60,000 square meters. This development followed the London Metal Exchange (LME) including Hong Kong in its global warehousing network in the previous year.

The LME has approved 15 facilities in the city to store metals such as copper, tin, and zinc. To further develop the city into a global commodity trading hub, Lee indicated that authorities would roll out additional tax incentives to attract more traders to establish and expand their businesses in the region. These measures include a half-rate tax concession for commodity trading, exploration of tax concessions for gold and commodity trading, fostering the creation of more accredited warehouses, and launching a pilot project for tokenized warehouse-receipt financing by the city's bourse operator next year.

Furthermore, Lee suggested encouraging the International Organisation for Mediation (IOMed) to establish a special panel of mediators for commodity trading.