Dubai is continuing its relentless march into the centre of the bullion market, with plans to start futures trading in the precious metals and other innovations proving successful.
Dubai is rightly known as the hub of the physical gold market, feeding both to the Indian sub-Continent and to the Middle East, which on average over the past ten years have accounted for 38% of gold fabrication and in 2004 accounted for 43% of total (GFMS figures). We have written before about the development of the Dubai Metals and Commodity Centre and its proactive behaviour towards the gold market with the latest development being the establishment of futures trading. The organisation now reports that the response has been overwhelming with the team working overtime to review and accept applications.
The gold futures contract will go live on November 21. When we last wrote on this subject, the Exchange was reporting considerable interest from a wide range of market members. The exchange will trade from 10:00am to 11:00pm local time Monday to Friday, thus overlapping with the Far East and North American markets. And a new development is that the Exchange will also open on Saturdays and Sundays as of early 2016 (although with shorter trading hours), thus giving traders access to a week-end market.
Meanwhile the Dubai Good Delivery Standard is designed for small bars and complements the London Good Delivery (400-ounce bars) and covers delivery requirements on the Exchange. This is a sensible move as it further enhances the reputation of the Exchange and guarantees grade and quality of the bars that it trades – and ultimately also promotes extra trade finance activities for the market participants.
The first refineries to receive certification were the Rand Refinery Ltd. (South Africa), Valcambi SA (Switzerland), PAMP SA (Switzerland), Metalor Technologies SA (Swiss-based, international subsidiaries), Johnson Matthey Hong Kong Ltd., Argor Heraeus SA (Germany), PT Antam (Indonesia) and AGR Matthey (Australia). Now the first local refinery has been admitted with Emirates Gold dmcc receiving accreditation earlier this month.
Emirates Gold has been part of the DMCC free zone since 2003 and its activities include gold and silver refining, foundry, die making and the minting of coins and medals, feeding predominantly the Middle East, Far East and Africa. The refinery has a capacity of 250-300 tonnes per annum of kilo bars.
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To qualify for admission to the Dubai Good Delivery List, a refinery must meet the following criteria:
- Have produced a minimum of ten tonnes of refined gold during the previous year in small bar form (i.e. kilo bars or smaller)
- Have a minimum total net worth of US$10 million
There are two categories of membership. Category one, in addition to the first two criteria, must also:
- Currently hold London Good Delivery status for its 400-ounce large gold bad production
- OR for category two (refineries not currently on the LBMA Good Delivery List and whose brands do not hold London Good Delivery status)
- Agree to an initial and thereafter regular independent third party testing of its gold bar production and submit the necessary documentation with respect to record keeping requirements and provide third part references as required by DMCC.
The good deliver requirements are available on the DMCC site, but the specification of the gold bars is as follows:
- The weight should be between 100 grammes and one kilogram
- Minimum fineness 995.0 parts/thousand
- The shape and measurements may vary but the surface of the bar should be smooth, free from any irregularities such as layering, surface cavities, bubble, blowholes or shrinkage
And they should bear the following marks:
- serial number
- assay stamp of refiner
- fineness to four significant figures
- year of manufacture and
- weight expressed in grammes or kilogrammes
All of which is very close to the London Good Delivery requirements.
Meanwhile the Dubai Gold Receipt is another market innovation. Successfully launched in May, the DGR is an electronic gold vault receipt involving traders, vaults and collateral managers, tester and banks and offers a means for the gold trade to access additional lines of finance. It gives access to gold in a range of forms, either bar, scrap, coin and jewellery, stored in a DMCC approved vault and an approved operator or manager that issues a DGR upon a trader’s deposit of gold. These are instruments that are negotiable and can be discussed and transfered to another trader. Use of the DGR thus allows a participant to transform their current credit risk into market risk and the DMCC is reporting that the number of users continues to increase.