COMEX no longer the only game in town...Welcome aboard Hong Kong!!!

As I do every day, I went to Bloomberg to display the commodities market and check on the CRB index and precious metals prices.

http://www.bloomberg.com/markets/commodities/futures/

Imagine my surprise when I saw there are now two (2) different quotes for gold and silver! They now are listing the prices as traded on the new (May 2011) exchange in Hong Kong in addition to the COMEX price.

http://themavenproject.com/2011/05/hong-kong-mercantile-exchange-hkmex/

If indeed Hong Kong is more transparent and less subject to government intervention than the COMEX, then the metals markets will have made an enormous stride forward. Absent the COMEX manipulation of margin requirements, the prices in Hong Kong would logically become much more the bench mark for metals prices over any period of time, and should attract additional investment flows into precious metals.

A very bullish development for metals investors of all stripes, and another piece of the financial world that has moved from the US to another less corrupt venue. I didn't think I would ever say the Chinese markets were less corrupt than the US, but to anyone who has paid attention to the COMEX the past 18 months, you already know the truth.

 

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I just lost brain cells reading that^^^^

 

I would like to check this out a bit more carefully before giving it the bullion investor stamp of approval.

In what way is it more transparent? Are they going to make every trade and holding public so we can see who is buying or selling?

Is the government of China a more trustworthy custodian than the Comex warehouses which have long track records?

Why would either market be THE benchmark if arbitrage between them is possible?

Why is it bullish for metals to have another outlet for shortselling, but no more physical gold in the world?

What is the basis for believing that a brand new market will be less "corrupt" than one with a long track record of successful operation?

Is the legal system in China more investor friendly than the US? On what basis?

 

Hong Kong maintains a separate legal system, judiciary and "constitution" from that of the PRC. It's based on common law and very similar to the Anglo-Saxon concepts used by the USA and the UK. Given the city is a major global financial hub, I would day it's very investor friendly.

 

Yes, at the pleasure of the government of China. This could change at any time.

 

I do realize that treaties are nothing more than ink on paper, but this was the agreement established with the UK when the colony was turned over to Communist China. For the foreseeable future, I see no advantage for the PRC to change anything and they have much to lose if they did.

 

Here is the rules-regulations for the HKME. They imply that settlement is only physical, but if you read section 6 fully, you might see how they allow otherwise using approved exchanges outside of the HKME. So it seems to me at first reading that the HKME may not have margins if they truly do physical delivery for you the investor, but you have to pay the full price upfront. which is the same as the CME if you take physical. Since the approved exchanges are needed to sell or trade a contract before expiration, the fees might serve as the margins or worse.

Also the delivery is in HK ( read the rules) unless one specifies delivery by a separate company. Might be handy for Asian investors who want physical, but not others. If I wanted to buy futures directly, I would not consider the HKME. But here are their rules, make one's own decisions.

Jim

http://www.hkmerc.com/en/rules_regulations/hkmex_rulebook/index.html

 

Hooray for position limits. I hope they enforce them for months beyond the current month unlike the recent vote by the CFTC.

 

Well, perhaps you understand the proposals better than I, Even after reading about a dozen or so explanations from both sides, and the original documents at CME, I get the feeling that those calling for the position limits expect that the price of metals will go well upward because the "speculators" no longer have control and metals can seek their real high, blah,blah. Since this applies to the US only, London who has the majority of PM and Copper future contracts will continue merrily along doing what they have been doing. Most people haven't really dug into the regulations currently in effects for CME contract positions for (PHYSICAL) which are different than cash settled, or they might see that position limits on physical delivery contracts help reduce the volatility in the physical area, but it also can/likely reduce a metal bull market.

Obviously people smarter than me have proposed this, but also there are smarter people than them who will find ways around it. IMO.

Jim

 

The point is that regulations even in the US are pretty complex, and when you invest in a different culture with an unfamiliar legal system, the problems are compounded. For example, the various investment regulations between the US and Canada are surprisingly different and complex. The fact that this is a brand new market with unproven regulations should make folks cautious before drawing the conclusion that it is superior to the US. But if you want to rush in, be my guest.

 

Agree. You never know, Taiwan could attempt to liberate the mainland with a militairy invasion.

 

I'm not particularly concerned with that, but it just seems to me that many people who are unable to make money investing in their own country have this belief that "If I just move my money a few thousand miles away to a country where I don't know anything about the markets, culture, or legal system, I'll do better." I think they are going to be disappointed. It's hard enough to obtain a complete understanding of US markets. Anybody who doesn't live in Hong Kong who believes they know what is going on there is probably fooling themself.

 

I wouldn't say I understand anything better than a lot of folks here. However what I have seen is that both short and long positions in silver are at historic lows, likely in preparation of position limits being a factor. So I don't think the price necessarily has to go up, since the shorts are already mostly out of the way, but the benefit of position limits is that the price will be a more accurate reflection of real market forces, and we will be less likely to see a concentration one way or the other. I'm not selling my silver so if the price goes down I'll just be able to acquire more than otherwise. I would just like to see fair market value, whatever the market deems that to be. I find it hard to accept that the volatility we have seen this year is the result of that.

 

Honestly, this along with the questions about communist China, is FUD. We are not talking about trading in the 3rd world, or a socialist (current or former) state, or in a banana republic. Hong Kong was a British colony for 100 years and their entire financial and legal system mirrors that of the USA & UK in regards to financial matters and it operates at a 1st world status. Every major bank in the West has operations there.

iMO, anyone with enough sense (and money) to directly trade on the futures market, won't have any trouble with Hong Kong. They have bigger problems here in the USA dealing with the lack of enforcement and the TBTF banksters gaming the PM futures sales.

 

I agree with everything you wrote, but it is irrelevant. Statements were made above by the OP that regulation in HK is more transparent than Comex. That Comex is manipulated and HK is not. That HK is now the benchmark price. That China is less corrupt than the US. That the HK market will push silver prices higher by virtue of its existence. I think these are the points under discussion and I don't believe any have been proven.

 

OK, then your comments about rube investors being duped by unfamiliarity with foreign law, which I was responding to, is of the same relevance. The expertise of traders participating in the futures markets are not under question.

What is being questioned is Hong Kong's ability to police regulations of said market. IMO, which I've already stated but I will rephrase it, they are closely aligned with Western banking interests and thus, won't do anything to rock that boat.

 

Once again, you've had to resort to lying to try to make a point that cannot be made truthfully. I said it is difficult to understand investing regulations, markets and the investing culture of other countries. So instant analysis of new markets in other countries is apt to be wrong. I never spoke about being duped [a lie], rube investors [a lie] and I was speaking to the points made by the OP with no reference to professional traders. I did not question HK's ability to police their markets. I questioned the ability of bullion investors at Cointalk to evaluate the impact of the new exchange on world silver prices. I did question the safety of owning physical silver under the protection of the government of China, and I stand by the statement.

If you want to discuss whether or not the HK regulators are aligned with western banking interests, you are welcome to put that out for discussion with others, but it is of no interest to me and it is you that brought up the subject, not me.

 

Calling me a liar is unnecessary and does nothing to further the conversation. You either have a valid point or you don't. If that point was actually this:

then we have the real issue with your problems here. Nobody asked you and I suspect that nobody is interested in your opinion of the other formers here.

I do agree there is no point in me trying to have a discussion with you as your intent was never to discuss the OP's questions, but rather used it as a tool to criticize the other forumers. You said it yourself.

 

It is very necessary to point out your disinformation and twisting of comments. If you [or anyone else] are not interested in my comments, feel free to ignore them. If you care to comment on what I say, that's okay. If your intent is to change what I say or present false information, expect a reply.