Published On: Wed, Dec 15th, 2010

Gold Demand, Mini-Contract Trade in Korea to Climb, Exchange Operator Says

Gold demand in South Korea is set to increase as consumers buy more bars and boost investments as currencies weaken, according to Korea Exchange Inc., which expects increased trading in its so-called mini futures contract.

“Koreans have more interest in gold than other commodities, regarding it as an investment tool,” Kim In Soo, an executive director at the operator of equities and futures markets, said in an interview yesterday. Korea Exchange is set to start a spot market for bullion in 2012, Kim said, confirming an earlier plan.

Gold surged to a record last week on investor concern that currencies are set to extend declines, while inflation in some nations may accelerate. The rally has stoked institutional and individual interest in the precious metal, which according to Goldman Sachs Group Inc. may lead commodity advances next year.

“We expect mini-gold trading to increase through next year as there is a plenty of investor interest,” Kim said. The contract, introduced in September, trades in lots of 100 grams (3.2 ounces). Volume touched a record 1,268 contracts on Nov 10.

Immediate-delivery gold has surged 27 percent this year, touching an all-time high of $1,431.25 an ounce on Dec. 7 and trading at $1,397.35 today. The metal may reach $1,690 an ounce in 12 months, Goldman Sachs said in a report yesterday.

The rising volume of futures trading, “will help prepare the spot market that we are planning,” said Kim. Open interest in the mini-gold contract was 659 contracts as of Dec. 13, compared with 528 at the end of November, Kim said.

‘Decent’ Demand

Korean investments in offshore gold futures almost doubled to about 300,000 contracts this year from 2008, proving there’s “decent” investment demand, Kim said. Mock trading of the spot contract will start in the fourth quarter of 2011, Kim said.

Kim’s comments add to signs of increased precious-metal demand in Asia. China’s imports jumped to 209 metric tons in the first 10 months of this year from 45 tons in all of 2009, the Shanghai Gold Exchange said earlier this month. The country is the world’s largest gold producer and second-biggest user.

The Perth Mint in Australia, producer of about 6 percent of the world’s bullion, said in November China was a “target market” for gold sales as banks may now import the metal. Silver-coin sales will also climb as investors seek to protect their wealth from weakening currencies, according to the mint.

Gold demand is “very strong,” fueled by jewelry purchases and Asia’s economic growth, Aram Shishmanian, chief executive officer of the World Gold Council, said on Dec. 7 in an interview on CNBC. Growth in Asia is “absolutely changing” the gold market, Shishmanian said.

Source: Bloomberg

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