Hong Kong banks urged to capitalise gold potential

Hong Kong is uniquely positioned in Asia to integrate the entire end-to-end gold ecosystem, says KPMG.

Hong Kong banks should take advantage of the city's gold potential, as it has the ability to offer a complete value chain like no other market in Asia, said KPMG.

Banks that combine a meaningful wealth franchise with institutional trading capability are best placed to capture this internalisation benefit, they said.

“The single most important differentiator available to Hong Kong is the ability to offer a complete, front-to-back gold value chain within one jurisdiction – from the intake of unrefined metal, through accredited refining, to vaulting, clearing and ultimately financialisation,” said Jianing Song, head of banking and capital markets, Hong Kong SAR for KPMG China; and Paul McSheaffrey, senior banking partner, Hong Kong SAR, KPMG China.

“In our view, no other centre in Asia is better positioned to do this,” Song and McSheaffrey said.

Asia’s private banking and wealth management clients are amongst the world’s most consistent buyers of gold, KPMG said.

If a local clearing and settlement layer is established, banks can net wealth-driven client flow within Hong Kong’s own infrastructure, in Asian hours.

“The result is a virtuous circle — private wealth demand deepens the institutional liquidity pool, deeper liquidity produces tighter bid-offer spreads and lower hedging costs, and tighter pricing in turn makes gold products more attractive to wealth clients,” Song and McSheaffrey said.

Much of the gold mined across Asia Pacific is still routed through Swiss refineries before being shipped back to Asia for end-use.

Hong Kong is developing infrastructure to support a significant expansion of gold trading, refining, and storage with government support including tax incentives, KPMG said.

The establishment of the Hong Kong Precious Metals Central Clearing Company (PMCC) with connectivity to the Shanghai Gold exchange is a critical step in the city’s gold hub strategy, it added.