A new way to buy gold with ‘redbacks’

The news that investors in Hong Kong will now be able to use the Chinese yuan to buy gold has grabbed headlines for gold investors. But what does it mean in practice? James McKeigue takes a look.

Buying gold in yuan just got a whole lot easier for international investors. Until now, only registered, mainland Chinese investors using regulated exchanges such as the Shanghai Gold Exchange could use China's currency to buy gold.

But on Monday, Hong Kong, the world's third-largest gold trading centre, launched a service that will allow international investors to use the redback' to buy gold.

Hong Kong's Chinese Gold & Silver Exchange Society's new Renminbi Kilobar Gold contracts allow investors to convert their yuan bank deposits into gold contracts. For the 101-year-old society the new contracts are a shrewd way to tap into the Hong Kong's swelling yuan deposits. Indeed, exchange president Haywood Cheung estimates that it could boost the society's trading volumes by 30%.

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As far as Western gold investors are concerned, this won't directly affect them, beyond the fact that anything that makes gold easier to buy will, all other things being equal, be positive for the price.

But the move is interesting because it also reflects some bigger, longer-term trends. It is part of Hong Kong's strategy to establish itself as China's offshore financial services centre. It also signals China's willingness to gradually raise the profile of the yuan and turn it into an alternative international reserve currency. Cheung hailed the contract as "a significant step towards internationalising the renminbi".

It definitely helps that "gold and renminbi are both headline-grabbing investment trends" says Nick Ferguson in Finance Asia. Some investors may worry that both are overhyped but "Cheung reckons they still offer value, arguing that gold is just half-way through aten to 15-year bull cycle and that the renminbi will appreciate by 5% to 6% a year before it becomes freely convertible".

James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.


After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the Forbes.com London bureau. 


James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. 


He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.