China opens first offshore gold vault in Hong Kong, but can it rival London’s dominance?

In a landmark step towards internationalising its commodity markets and reducing reliance on the US dollar, China has rolled out its first offshore gold vault in Hong Kong. According to Bloomberg, the Shanghai Gold Exchange (SGE) launched the facility alongside two new yuan-denominated gold contracts, marking the exchange’s first physical expansion outside mainland China since its founding in 2002.

The vault, operated by Bank of China’s Hong Kong unit, will allow settlement of trades in either cash or physical gold delivery. As per the Shanghai Gold Exchange’s statement quoted by Bloomberg, storage fees at the new vault will be waived until the end of this year to incentivise participation. Trading on the new contracts began Thursday.

Why the move matters?

The timing and location of the expansion are significant. As the world’s largest producer and consumer of gold, China has long sought greater influence in pricing the metal. The new offshore contracts, settled in yuan, are also part of Beijing’s broader goal of promoting the renminbi in international trade and reducing dependence on the greenback.

Bloomberg reports that the move also strengthens Hong Kong’s role as a global financial centre. The city has long served as a gateway between China and international capital markets and is now being positioned as a logistics and trading hub for commodities not just finance.

London still rules the global gold trade

Despite the expansion, China still lags far behind the London Bullion Market Association (LBMA), which remains the global centre for gold trading. According to the World Gold Council, trading volumes on the LBMA still vastly exceed those of the SGE.

Here’s how trading volumes compare in the first five months of 2025:

While the Shanghai Gold Exchange is the single largest platform for physical bullion trading, the over-the-counter nature of London’s market ensures it remains the benchmark for institutional and wholesale activity.

A quiet bid to de-dollarise

As quoted by Bloomberg, China’s central bank has been a major gold buyer over the past three years, using the metal as a hedge against dollar volatility. Analysts believe the yuan-denominated offshore contracts are another step in Beijing’s ambition to reduce the dollar’s dominance in global commodity pricing.

The Shanghai Futures Exchange, the country’s largest commodity bourse, is also preparing to open up to foreign investors. The trend points towards deeper yuan integration in energy and metals markets, building on China’s vast role in global supply chains.

Will London’s dominance hold?

London still accounts for the lion’s share of global gold trading, but competition is growing. Singapore is also making a play for bullion trade, while Hong Kong is sharpening its position in warehousing and logistics. However, as per analysts quoted by Bloomberg, trust, transparency, and global pricing infrastructure still favour Western markets.

For now, the new Hong Kong vault gives Beijing a stronger foothold in global gold markets, but it is still playing catch-up in a centuries-old market.

(With inputs from the agencies)