Information Note for the
LegCo Panel on Financial Affairs
Bullion Trading

Gold trading in Hong Kong

Gold trading has a long history in Hong Kong. We are one of the world’s major trading centres in gold. Currently, gold trading in Hong Kong is conducted through the following main markets -

  1. The Chinese Gold and Silver Exchange Society;
  2. the Loco London Gold market; and
  3. the physical gold and jewellery market.

This paper focuses on (a) and (b) above.

2. The Chinese Gold and Silver Exchange Society (the Society) was established in 1910 and currently has 191 member companies. Members trade among themselves. Some of them also participate in the Loco London Gold market through subsidiary companies for trading or arbitrage. Some are also engaged in retail trade in the Loco London Gold market.

3. The Society’s standard trading lot is 100 taels of gold of 99% fineness. Prices are quoted in Hong Kong dollars per tael. In 1995, total turnover amounted to 18 million taels.

4. Apart from providing trading facilities for its members, the Society also acts as a self-regulatory body. Under the rules of the Society, responsible officers of a member company must comply, on a continuous basis, with the fit and proper criteria laid down by the Society. Where there is a complaint against a member, the Society will conduct an inquiry. Disciplinary action by the Society against individual members include warning, financial penalty, public censure, and suspension or withdrawal of membership.

5. Trading in the Loco London Gold market is usually conducted at the wholesale level between major participants such as banks, major international bullion houses and gold trading companies. Some individual traders are also engaged in retail trade.

6. The Loco London Gold market is a spot market with delivery of gold in London. Settlement may be deferred and leveraged trading is the norm. Each trading lot is 100 troy ounces and the fineness is usually 99.99%. Loco London gold contracts are traded virtually around the clock. Among other things, this market facilitates arbitrage activities, using the Hong Kong gold price as a reference. Total turnover of this market is estimated to be higher than that of the Society but no exact data are available.

7. The price of Loco London gold fluctuates within a relatively small range in recent years, as follows -

Price in US$ per troy ounce
1994 $368 - $398 (8.1%)
1995 $371 - $397 (6.7%)

Intra-day price fluctuations are even smaller.

Recent complaints

8. Since late April this year, the Securities and Futures Commission (SFC) has received a total of about 40 complaints relating to bullion trading activities. However, the number of complaints has dwindled recently. Many of the complainants have also made simultaneous complaints to the Police, the Labour Department, District Offices and the Consumer Council. Typically, job seekers have been tempted by their employers which purport to be bullion trading companies to invest in gold bullion. They subsequently incurred losses. As fraud is suspected, SFC has advised the complainant to report to the Police if they have not already done so. The Police are continuing their investigations into complaints lodged with them.

9. From information gathered by the SFC, it appears that the complaints are directed at a small number of companies. Apparently in most cases, the complainants have been persuaded into signing a letter giving the company concerned absolute discretion to trade on their behalf. The companies have adopted abusive practices such as hindsight trading and churning of trades to maximise the commissions payable to them. On occasions, complainants’ instructions have been deliberately ignored, and the complainants are therefore prevented from realising profits or cutting losses. In most cases, no trades are put through to the Loco London Gold market or the Society. It is doubtful whether bullion transactions are involved at all.


10. The bullion market in Hong Kong has been operating for almost a century. In the Society’s 86 years of history, its role as a self-regulator has been fully recognized by the market. Complaint cases have been rare and where they do occur, the Society will step in and help resolve the complaints. The complaints concern the fineness of gold or the conduct of individual members. There is one current complaint against a member company which is alleged to be related to another company which is under Police investigations in connection with the recent complaint cases. Preliminary investigations by the Society indicate that the two companies are unrelated but investigations are still continuing.

11. In respect of the Loco London Gold market, there has not been any complaint concerning the trading system or procedures. We therefore do not consider it appropriate to subject the Society or the Loco London Gold market to any form of regulatory control.

12. Any suggestion of bringing bullion trading activities under regulation is problematic. There will be serious problems in defining the types of activities to be regulated, bearing in mind the need to avoid regulating legitimate bullion trading activities the regulation of which is not justified. Furthermore, no amount of legislation will be able to eradicate fraud and deception. Unscrupulous companies with the intention to defraud and deceive will just find other means to achieve their ends.

13. We believe that a more viable solution is for the Government to educate the public about such fraudulent activities. In this regard, as job seekers appear to be the favoured targets, the Labour Department has earlier issued a press release and distributed pamphlets to advise job seekers particularly students looking for summer jobs to be aware of various forms of summer job traps including those in foreign exchange and other financial investments.

14. The Police have also highlighted recent complaints about bullion trading activities in its Police Call programme broadcast recently.

15. We will consider a more concerted publicity effort by the relevant Government departments and the Consumer Council to highlight the pitfalls to job seekers and potential investors, stressing the risks involved in undertaking such speculative activities and generally drawing attention to the abusive practices of some companies which purport to be bullion traders.

Financial Services Branch

Last Updated on 18 Aug, 1998