Exchange Fund could buy more gold to boost trade

Chief Executive John Lee of Hong Kong is contemplating using the Exchange Fund to acquire additional gold, aiming to boost gold trade and position the city as a global hub for the precious metal. The Exchange Fund, acting as Hong Kong's de facto sovereign wealth fund, currently holds HK$134.7 billion in assets as of the first six months of this year.

During his Policy Address, Lee indicated that the Hong Kong Monetary Authority (HKMA) is examining the potential to expand the Exchange Fund's gold reserves and engage in the local spot and futures market. The HKMA is also contemplating a gradual relocation of physical gold holdings to vaults designated by the Hong Kong Precious Metals Central Clearing Company Limited (PMCC), a government-owned entity that initiated a trial gold clearing and settlement system in early July.

Lee announced that the gold clearing and settlement system would commence operations in the first quarter of next year, and a dedicated hotline would be established to provide comprehensive assistance to mainland and overseas gold traders. Other initiatives include allowing the Mandatory Provident Fund (MPF) Schemes Authority, which oversees local residents' pension funds, to invest more in gold exchange-traded funds (ETFs).

The government also seeks to encourage the development of a gold industry association and host a flagship event the following year. In terms of the broader commodity trading landscape, Hong Kong currently stores more than 20,000 tonnes of metals in designated local warehouses, with storage space surpassing 60,000 square meters. This figure stems from the London Metal Exchange (LME) incorporating Hong Kong into its global warehousing network last year, approving 15 facilities thus far for storing metals like copper, tin, and zinc.

To further elevate Hong Kong as a global commodity trading center, Lee pledged to introduce 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, ongoing examination of tax concessions for gold and commodity trading, fostering the creation of additional accredited warehouses, and launching a pilot project for tokenized warehouse-receipt financing by the city's bourse operator next year.

Lee also emphasized the encouragement of the International Organisation for Mediation (IOMed) to explore the formation of a specialized panel of mediators for commodity trading.