London faces rising competition from countries such as China for its status as one of the - if not the - most important gold trading centres. A venture aims to keep the UK capital ahead of the pack.

The World Gold Council, the industry group, and the London Metal Exchange have teamed up with large banks to roll out exchange-traded and centrally-cleared precious metals products, designed to tap investor demand and withstand global competitive threats. Separately, the WGC reported a large rise in gold demand for the first six months of 2016.

The WGC and LME are partnering with Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis, OSTC and Societe Generale for the new venture, called LMEprecious.

As rival financial centres such as China's Shanghai compete with London as a hub for trading gold and other precious metals, the move is seen as a way for the UK capital to stay on the front foot. In April, China launched a renminbi-denominated gold benchmark. China, a major importer and producer of gold, has been trying to reduce its need to rely on dollar-denominated gold trading.

"It will strengthen London’s position in the global gold market, enabling it to meet the needs of all participants, attract new players and satisfy the highest standards of regulatory compliance," said Aram Shishmanian, chief executive of the World Gold Council.

LMEprecious will comprise spot, daily and monthly futures, options and calendar spread contracts for gold and silver.

Future developments will include platinum and palladium contracts. All trading will be centrally cleared on LME Clear, the LME’s real-time clearing house, and make use of the London market’s existing delivery infrastructure. The new product suite will complement the bilateral over-the-counter market.

The involvement of ICBC Standard Bank, the London-based group, is notable as a sign of how China has growing ambitions in the market for hard assets.

ICBC Standard Bank was created at the start of February when Industrial and Commercial Bank of China bought a controlling holding in part of Standard Bank. By contrast, Barclays is pulling out of the precious metals market, as it restructures its operations and shrinks some of its global footprint.

Gold demand
Global gold demand reached 2,335 tonnes in the first half of 2016 with investment reaching record levels for a six-month period - 16 per cent higher than the previous record in H1 2009 - according to the World Gold Council’s latest Gold Demand Trends report.

"The Chinese gold market has faced a number of headwinds over the course of H1 2016. A weaker outlook for the domestic economy and a higher gold price were combined with external events such as the UK’s EU referendum and ongoing tensions in the Middle East, and all contributed to a fall in demand. In the jewellery sector, sluggish purchases were reflective of wider challenges in the industry, as the supply chain was hit by new hallmarking legislation," said Roland Wang, managing director of the World Gold Council China.

"Looking ahead, we remain optimistic for the Chinese investment market, particularly inflows into ETFs, as consumers continue to seek a diversified portfolio in the face of economic uncertainty," he added.