The Hong Kong Special Administrative Region and Shanghai signed a cooperation agreement on Monday to foster gold trading, putting flesh on the bones of a coordinated push to elevate China's two major financial centers in the global gold market.

Officials and industry experts said they expect the deal to promote long-term interconnectivity opportunities, with a more integrated renminbi-based Asian gold market in the making.

The agreement was signed by Christopher Hui Ching-yu, the HKSAR's secretary for financial services and the treasury, and Yu Wenjian, chairman of the Shanghai Gold Exchange, on the opening day of the 19th Asian Financial Forum in Hong Kong, marking "a defining milestone" in the development of the HKSAR's gold market.

The landmark deal comes at a critical juncture when "the strategic importance of gold has become even more pronounced amid heightened geopolitical uncertainty, inflationary pressures and ongoing restructuring of the international monetary system", Hui said at the forum.

Under the agreement, the Hong Kong Precious Metals Central Clearing Co, which is wholly owned by the HKSAR government, will establish "a high-level, collaborative governance structure", with the HKSAR's secretary for financial services and the treasury chairing its board and a representative from the Shanghai Gold Exchange serving as deputy chairman.

The Shanghai Gold Exchange will provide technical and regulatory input on system design, rulemaking, institutional access, risk management and operational standards, while both sides will work in tandem to ensure the efficient development of the trade-clearing system for gold and alignment with international gold standards.

In his opening speech at the two-day forum, Hong Kong Chief Executive John Lee Ka-chiu said on Monday that the cooperation deal will "set in motion a cross-boundary, trade-clearing system for the precious metal".

As Hong Kong plans to launch trial operations for its centralized gold clearing system this year, Hui, from the treasury, said on the sidelines of the forum that the initial focus will be on system infrastructure and regulatory frameworks before expanding the list of eligible participants.

Future cooperation with the Shanghai Gold Exchange will include deeper engagement on physical delivery, warehousing and broader ecosystem development, further broadening financial connectivity between the two markets, Hui added.

The deal also underscores Hong Kong's vision to expand its gold storage capacity to more than 2,000 metric tons in three years.

Zou Lan, deputy governor of the People's Bank of China, the nation's central bank, who witnessed the signing of the agreement, pledged support for the Shanghai Gold Exchange's participation in the development of the trade-clearing system for gold, for bolstering Hong Kong's ambition to become an international gold trading center, and for reinforcing the HKSAR's strategic role as an offshore renminbi hub.

In June last year, the Shanghai Gold Exchange launched its first offshore gold delivery vault in Hong Kong and the listing of relevant gold contracts for delivery on its international board in Hong Kong, diversifying the options of offshore renminbi assets for investors.

"More opportunities and room for cooperation should be expected," said Robert Lee Wai-wang, an HKSAR Legislative Council member, highlighting the "strong resolve and alignment" seen in the central government, the HKSAR government and industry stakeholders to develop a more integrated gold market.

Hong Kong's traditional financial institutions, small and medium enterprises, multinational companies, jewelry businesses and mining enterprises have their due roles to play, said Robert Lee, who also serves as vice-chairman of the Hong Kong Gold Exchange.

Edward Au, Deloitte China's southern region managing partner, said the cooperation deal "supports the gradual development of a more integrated renminbi-based Asian gold market, particularly re-levant amid geopolitical tensions, reserve rebalancing and financial fragmentation".

While an immediate wave of international investment inflow is unlikely, the deal will help make Asia's gold market more accessible and institution-friendly, Au said. "With consistent policy execution, deeper capital participation should emerge over time," he added.