Central Japan Commodity Exchange to Commence U.S. Dollar-Denominated Gold Futures Trading in 2005.
LOS ANGELES & TOKYO -- C-COM responds to needs for currency and gold hedging, as well as overall trends in global gold futures markets
One of the world's largest commodity exchanges, Central Japan Commodity Exchange (C-COM), today announced that it will commence the U.S. dollar-denominated futures trading for gold contracts beginning in Year 2005.
The decision comes as a result of the in-depth analysis conducted by a specially appointed C-COM committee -- the Gold Futures Market Study Committee. Following a thorough evaluation of the Japanese market, Asian and other key global markets, the committee came to the conclusion to initiate the U.S. dollar-denominated gold futures trading to both meet the expanding needs for risk hedging and investment in U.S. dollar-denominated gold futures in Asia, as well as to determine transparent and appropriate prices.
Although there is a yen-denominated gold futures market (precious metal market at the Tokyo Commodity Exchange) in Japan, traders currently are unable to fully hedge the risks due to the fluctuation of the exchange ratio.
The U.S. dollar-denominated trading and inherent hedging is crucial, because high gold prices coupled with depreciated dollars (when compared against the yen), have an inverse correlation, and, therefore, the risk cannot be fully mitigated in a yen-dominated futures market.
Other key trends are also at play. In addition to the need for greater currency and gold futures hedging, the notion of asset management in Japan also is diversifying, as seen in the rapid increase in foreign currency-denominated deposits and other foreign exchange (Forex) (Note 1).
Furthermore, Asian nations, mainly China and India, have strong tendencies to buy and hold gold. In particular, market trends in China are critical to watch.
There is the U.S. dollar-denominated Loco London Market located in Hong Kong, a spot market for gold bullion (delivered in London); however, in Asia, there is currently no U.S. dollar-denominated gold market for futures trading. It is against this backdrop that C-COM will open the market, as an industry leader.
C-COM representatives said that the application for the gold futures contract will be sent immediately to the Ministry of Economy, Trade and Industry (METI) with the expectation of a rapid approval and successful listing.
