A yuan-denominated gold fix will be launched by year-end via the Shanghai Gold Exchange to give the world's biggest producer and leading consumer of bullion more influence over pricing. [Photo/China Daily]

System will give China larger role in setting international price of the precious metal

A yuan-denominated gold fix will be launched by year-end via the Shanghai Gold Exchange to give the world's biggest producer and leading consumer of bullion more influence over pricing.

The first public confirmation made by an exchange official comes after Reuters cited sources in February on the proposal for the fix to be set through trading on the SGE, the world's biggest physical bullion exchange.

"We will be introducing a yuan-denominated fix at the right moment. We hope to introduce (it) by the end of the year," SGE Vice-President Shen Gang said at the LBMA Bullion Market Forum in Shanghai on Thursday.

"We have policy support for development (of the gold market)," she added.

Sources familiar with the matter have said that the central bank should soon approve the fix.

Pan Gongsheng, a deputy governor of the People's Bank of China, said the central bank will continue to support "speedy and healthy growth of the China gold market".

If the yuan fix takes off, China could make local buyers and foreign suppliers pay the domestic yuan price, making the current dollar-denominated London fix less relevant in the world's biggest bullion market.

However, given that the yuan is not fully convertible, the two fixes could co-exist.

The SGE submitted details of the fixing process and rules for participants to the PBOC a few weeks ago, sources familiar with the matter said.

Once the SGE gets PBOC approval, it will work to sign up Chinese and foreign banks for the fix. About 15 Chinese banks are expected to participate initially, the source said.

The exchange has held talks with foreign banks regarding the fix but they could be reluctant to participate at a time when the United States and European regulators are scrutinizing benchmarks across asset classes following the manipulation of the London interbank offered rate.