How Asia Is Rewriting the Rules of Gold Price Discovery

Physical delivery rates tell the most important story in global gold markets right now. On the Shanghai Gold Exchange’s benchmark contracts, approximately 90% of trades result in physical metal changing hands. In London, that figure falls below 2%. On COMEX, it drops below 1%. Three venues, three radically different answers to the question of what “trading gold” actually means.

The global gold market is undergoing a structural realignment that most Western participants have not yet fully incorporated into their analytical frameworks. The SGE’s offshore vault launch in Hong Kong in June 2025, the listing of yuan-denominated gold contracts deliverable in that city, the progression of Project mBridge toward commercial-phase cross-border settlement, and the observable pattern of central bank demand tilting toward domestic or allied custody have collectively shifted the terrain. This is not a story about gold’s price today. It is a story about who sets that price tomorrow.

What follows unpacks the mechanics of that shift, explains why London’s paper market model faces trust and custody vulnerabilities that tokenisation alone will not resolve, and provides investors in mining, royalty, and precious metals with a concrete framework for repositioning their analytical tools toward the infrastructure that will increasingly govern physical price formation.

The settlement gap that defines modern gold markets

The three primary venues for global gold trading share a name and a commodity. They share very little else.

The delivery gap in one line: approximately 90% physical settlement on the SGE, under 2% in London, under 1% on COMEX.

The distinction between unallocated credit claims and physical title is not a technical footnote. It is the defining variable in price discovery legitimacy. In London, a customer holds a claim on a bank’s pooled gold, not title to specific bars. In COMEX, the majority of contracts are cash-settled without metal moving at all. The BIS described London in 2024 as the core global liquidity pool, and that characterisation remains the institutional consensus.

Liquidity, however, is not the same as physical price discovery. Synthetic leverage in London and COMEX allows bullish sentiment to be expressed through instruments that never require physical metal to change hands. Investor demand, channelled through these structures, does not create the supply tightness that would force prices higher in a physically settled market. The SGE, by contrast, anchors pricing to the balance of parties willing to deliver or accept actual metal at a specific price.

The SGE physical delivery contract specifications set out the precise bar standards, purity requirements, and vault delivery procedures that underpin the exchange’s approximately 90% physical settlement rate, making the SGE’s market structure categorically distinct from the book-entry and cash-settlement models that dominate London and New York.

These are not three versions of the same market. They are three categorically different instruments dressed in the same name.

Where London’s unallocated model meets its structural limits

London remains the largest and most liquid gold market globally. BIS confirmed as much in 2024, and that reality has not changed. The question is whether liquidity alone sustains dominance when the trust architecture beneath it is under structural pressure.

The mechanics of London’s unallocated accounts mean customers hold a credit claim on a bullion bank’s pooled gold, not title to specific bars. Rehypothecation is permitted. Third-party verification of physical backing is difficult. Physical delivery occurs on fewer than 2% of trades. For decades, this structure served its purpose: efficient capital deployment for large financial flows.

Since 2022, the environment has shifted. The freezing of Russian reserve assets accelerated sovereign sensitivity to custody risk and dependence on Western financial infrastructure. Central banks have been net buyers of gold, with a growing preference for domestic or allied custody. For these participants, the question is not whether London is liquid. The question is whether their claim on a London bank’s pool is safe under conditions of geopolitical stress.

Gold’s safe haven credentials are increasingly contingent on which market structure an investor accesses: a credit claim on a London bullion bank pool offers a categorically different risk profile during geopolitical stress than an allocated bar held under SGE-affiliated custody in Hong Kong or a domestic central bank vault.

Allocated or unallocated: the question tokenisation cannot avoid

London’s digital gold initiatives, including tokenised representations of bullion explored by LBMA participants and fintech consortia, are positioned as a competitive response. The analytical test is straightforward: does the token represent an allocated claim on an identified bar, or an unallocated claim on a bank’s pool?

If the token wraps an unallocated claim, rehypothecation and opacity persist. The wrapper is new; the model is unreformed. Only fully allocated, legally enforceable, and independently audited tokenised claims on identified bars would satisfy the trust criteria relevant to central banks and large sovereign investors.

The critique that tokenising unallocated claims constitutes “a digital veneer over an unreformed paper market” is an analytical assessment, not an established outcome. Current public LBMA and fintech documentation confirms exploration but not large-scale migration to allocated, independently custodied, on-chain bullion.

London’s displacement as the dominant venue is a trajectory, not a current outcome. The structural vulnerabilities, however, are real, and the trust deficit for sovereign participants is widening.

How dealer intermediation keeps gold bullishness synthetic

CFTC Commitments of Traders reports reveal a persistent structural pattern in gold futures. Managed money, the fund community, carries net long positions. Swap dealers, which include large banks, carry net short positions against them. Managed money adds long positions into rallies; swap dealers absorb the flow by expanding net short exposure.

This is dealer intermediation at scale. The dealer community controls the lifecycle of the instruments through which bullish exposure is channelled: strikes, expiries, and roll behaviour. Three mechanisms limit the translation of bullish sentiment into physical tightness:

• Synthetic instrument creation: Bullish demand is satisfied through futures, options, and ETFs rather than wholesale allocated bar purchases.
• Expiry management: Dealers manage the expiration cycle of the instruments, determining when positions roll rather than settle physically.
• Roll behaviour control: The terms and pricing of roll transactions are set by the intermediating banks, not by the fund managers expressing the bullish view.

JP Morgan’s documented regulatory history in precious metals, including CFTC and Department of Justice spoofing settlements, establishes a pattern of aggressive position management rather than neutral market-making. This regulatory record provides context for the current intermediation structure, though characterising it as a deliberate containment strategy goes beyond what public sources directly document. It remains a plausible analytical interpretation of observable patterns.

Positioning signals versus physical settlement reality

The bullish signals on the COMEX tape are visible: rising retail interest, higher price floors, expanding call open interest, managed money adding long positions into rallies. The delivery data tells a different story. Physical delivery remains below 1%.

COMEX’s extension to near 24-hour electronic trading is a structural response to Asian market relevance. It does not change the venue’s fundamental character as a cash-settlement-dominated futures market. Investors expressing gold bullishness via ETFs, futures, or structured products should understand that the lifecycle of those instruments is managed by counterparties whose structural incentives may not align with maximising physical price pressure.

How Hong Kong became the physical bridge between East and West

The infrastructure taking shape in Hong Kong is not an organic market development. It is a deliberate sovereign project, backed by state capital, state-owned clearing architecture, and explicit policy statements from Hong Kong’s government.

In June 2025, the SGE opened its first offshore certified bullion vault in Hong Kong, operated by Bank of China (Hong Kong). Simultaneously, it listed two new contracts on its International Board: iPAu99.99HK and iPAu99.5HK, both CNY-denominated, with settlement available as either cash or physical delivery via the Hong Kong vault.

The Hong Kong Precious Metals Central Clearing (HKPMCC), a state-owned central counterparty in its development phase during 2026, connects the SGE’s on-exchange physical model to Hong Kong’s OTC market through a single infrastructure layer linked to the SGE International Board vault.

Hong Kong’s Financial Services and the Treasury Bureau explicitly welcomed these developments as part of building “a broader gold ecosystem.” The expansion targets, from approximately 150 tonnes of current vault capacity toward 200 tonnes near-term and 1,000 tonnes longer-term, signal sovereign capacity-building, not logistics optimisation.

The hub performs three distinct functions:

1. It provides mainland investors access to gold held and traded in Hong Kong under SGE rules.
2. It allows foreign institutions to access yuan-denominated, physically deliverable gold without dealing directly with mainland capital controls.
3. It creates an arbitrage mechanism between Western paper markets and Asian physical markets, where sovereign-backed physical delivery venues constrain the extent to which synthetic selling can depress prices below levels at which physical supply is available.

This infrastructure layer is the plumbing that makes SGE-anchored price discovery relevant to foreign institutions. Understanding its architecture tells investors which counterparties and which benchmarks will govern physical flow pricing across Asia.

mBridge and the cross-border settlement architecture for yuan-denominated gold

Project mBridge is a multi-central bank digital currency (multi-CBDC) platform enabling real-time, peer-to-peer cross-border payments and foreign exchange transactions using wholesale CBDCs, without routing through traditional correspondent banks or SWIFT. Its participants include:

• Digital Currency Institute of the People’s Bank of China
• Hong Kong Monetary Authority (HKMA)
• Bank of Thailand
• Central Bank of the UAE
• Saudi Arabia (full participant from 2024)

The platform reached minimum viable product stage by mid-2024 and continues to progress toward commercial-phase expansion. BIS Innovation Hub documentation describes mBridge as a generic multi-CBDC platform, not a gold-specific instrument.

The BIS Innovation Hub documentation on mBridge confirms the platform reached minimum viable product stage by mid-2024, with the multi-CBDC architecture designed to enable real-time, peer-to-peer cross-border settlement outside traditional correspondent banking rails.

The connection to gold requires a step of inference, and the boundary between documented fact and analytical projection matters here.

Where documented fact ends: mBridge enables cross-border CBDC settlement outside dollar rails. The SGE lists yuan-denominated, physically deliverable gold contracts now extendable to Hong Kong. Saudi Arabia participates in mBridge and is a major energy-exporting economy.

Where analytical inference begins: The combination of SGE, the Hong Kong hub, and mBridge creates a potential alternative settlement corridor for gold-linked trade. Physical gold provides trust-anchoring collateral for mBridge-facilitated transactions. mBridge provides payment plumbing that bypasses dollar rails. Together, these could allow internalisation of yuan trade through infrastructure rather than political negotiation.

Yuan-denominated gold settlement is the mechanism through which the SGE’s physical delivery model and mBridge’s cross-border payment plumbing converge into a single alternative to dollar-cleared London trades, and Saudi Arabia’s 2024 accession to mBridge is the most significant indicator yet that this corridor has geopolitical backing beyond China alone.

This framework is directionally supported by the combination of current policy moves, but it should be understood as a strategic trajectory rather than a currently operational gold settlement system.

For mining companies and royalty investors with exposure in Belt and Road corridor jurisdictions, mBridge’s maturation creates a realistic planning scenario where counterparties prefer CNY-denominated offtake settled via CBDC rails. The benchmark and currency risk implications are material.

What investors should be tracking differently right now

The structural shift described above requires a corresponding shift in analytical inputs. Four data streams should be added to standard monitoring with equal priority alongside COMEX positioning and LBMA fixes:

1. SGE volumes and delivery rates: The physical settlement rate is the clearest signal of actual supply-demand balance in the world’s largest physical gold market.
2. Hong Kong vault inventory: Capacity expansion and utilisation rates indicate the pace of the eastward shift in physical custody.
3. HKPMCC clearing data: As the central counterparty develops through 2026, its clearing volumes will indicate institutional adoption of the SGE-linked physical model.
4. mBridge commercial phase developments: Progression toward full commercial operation determines the timeline for alternative cross-border settlement in gold-linked yuan transactions.

Three categories of mining and royalty company exposure require reassessment:

• Asian offtake relationships: Companies with SGE or Hong Kong infrastructure access, or yuan-denominated contract capability, may merit a structural premium in forward price assumptions relative to peers reliant solely on Western paper benchmarks.
• Belt and Road jurisdiction presence: Mining companies with material exposure in Africa, Central Asia, and Southeast Asia face both currency risk (CNY shift) and benchmark risk (SGE or Hong Kong reference pricing).
• LBMA or COMEX benchmark contract definitions: Offtake and royalty agreements defining “spot gold” via LBMA fix or COMEX settlement in USD may diverge from realised prices if Asian physical markets sustain a premium.

Arbitrage currently keeps prices across venues closely aligned. That alignment should not be assumed permanent as physical infrastructure and sovereign flows tilt further toward Asia.

The map has already changed; the benchmarks have not caught up yet

The physical infrastructure enabling a structurally distinct, yuan-denominated, sovereign-backed gold pricing corridor is now operational, not hypothetical. The SGE vault in Hong Kong is open. The contracts are listed. The clearing architecture is under construction. The payment plumbing, via mBridge, is progressing toward commercial scale.

London’s displacement as the dominant venue remains a trajectory, not a current outcome. mBridge as a gold settlement rail remains analytical inference, not documented reality. But the direction of sovereign capital, policy investment, and infrastructure build is not ambiguous.

Investors and mining companies that treat gold price discovery as a static, London and New York-centred system will increasingly miscalibrate risk, valuation, and positioning as the SGE and Hong Kong physical markets gain structural weight. The investors who update their analytical framework before the arbitrage alignment breaks down, rather than after, will be best positioned to identify which companies and contract structures capture the value created by this shift.

The clearest near-term implication of the SGE and Hong Kong infrastructure build is the emergence of a dual-benchmark world, where CNY-denominated physical prices and USD-denominated paper prices coexist with persistent but narrowing arbitrage corridors that eventually force offtake contract renegotiation.

Readers should begin incorporating SGE and Hong Kong physical market data into standard investment monitoring. Mining companies with relevant geographic exposure should conduct a formal review of benchmark definitions and settlement currency provisions in existing offtake and royalty agreements.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions. Forward-looking statements regarding mBridge development, Hong Kong infrastructure expansion, and shifts in global gold pricing are subject to change based on market developments, regulatory decisions, and geopolitical conditions.