Oct. 10 – This week, for the first time ever, Malaysia has started to allow the trading of gold futures on Bursa Malaysia – the country’s stock exchange. The Bursa currently has 19 registered futures trading brokers.
For some time now, there has been a large gold business within Malaysia, with the country exporting over RM7.1 billion (US$2.2 billion) worth of finished jewelry last year – the majority of which went to Dubai.
By July of this year, RM4.6 billion worth of finished jewelry had already been exported.
Further, last year, RM9 billion was exported in non-monetary form mostly in the form of gold bullion. This number is expected to increase up to RM12 billion by the end of this year. Gold bullion is both an investment tool and a material for jewelry.
Gold is often seen as a safe investment during uncertain economic times. Chong Kim Seng, CEO of Bursa Malaysia Derivatives Bhd, has stated that “the issues that [are] facing the U.S., the government shutdown and the tapering policy, have an impact on the US dollar and interest rates, so it’s important that people consider gold as part of their portfolio.”
There have been a number of Malaysian gold trading companies that have run afoul of the authorities due to criminal practices as of late, which is why the government has taken steps to both legitimize and regulate the trade of gold through the Bursa. As an additional safety measure, the Bursa Malaysia Derivatives Clearing House will also guarantee all trades made.
In order to encourage buying in the new gold market, Bursa Malaysia has also begun to offer smaller contracts for 100 grams of gold at a time. Buying of multiple lots will also be allowed for those who want to hedge.
The minimum amount needed to begin trading is just RM1,000 (US$311), and all contracts are cash settled so there is no actual delivery of the gold.
During its first day, the Bursa traded RM12.1 million (US$3.77 million) worth of gold. At current trading prices, this amount was equal to 90.2kg of physical gold.
The first day also saw a total of 64 trading accounts actively participating in the market.
“We need to become [a] fully-fledged [exchange operator] and diversified. We are aware of the need for more margin hedging instruments,” explained Bursa CEO Chong.
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