China mounts gold liquidity grab as London market reforms

Mon Oct 19, 2015 2:00am EDT
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* London market re-examines OTC gold trade

* Exchanges vie for London gold futures contracts

* China's benchmark ambition could further hit London liquidity

By Clara Denina

VIENNA, Oct 19 (Reuters) - As the London gold market enters its next phase of reform, a sense of urgency is key because competitors, including commodity consuming giant China, are poised with new products to grab liquidity and global influence.

Global liquidity is shrinking due to persistently low gold prices as the market still struggles to shake off the impact of a seismic crash two years ago. Bruised investors have largely stayed away, while dealing desks have also become smaller.

London, currently the global market nucleus, is re-examining the way bullion is traded after sweeping reform of its price benchmarks.

At the same time, China, the metal's largest consumer and producer, is aiming to become a price setter with its yuan-denominated gold benchmark by the end of 2015, a move that could beat any rivals' effort to increase market share.

"There are too many vested interests and China is likely to win the main prize, because it wants to influence the prices of the commodities it is the biggest user of," one senior London trader said at the opening of the gold industry's annual conference, this year in Vienna.   Continued...