On Monday, November 25, banks will be able to trade Gold Swaps through China's Singapore Exchange.
- Only physical gold or cash will be transacted through Singapore, which should reduce the influence of derivatives.
- This will result in arbitrage trading* - buying on COMEX and selling in Singapore resulting in a more efficient gold market.
· Arbitrage activity should improve the COMEX price due to more efficient markets.
* Arbitrage trading: The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.
