Shanghai-Hong Kong launches the “real-asset connectivity” mechanism — what’s convenient about gold trading?

Hong Kong’s Central Clearing and Settlement System for Gold officially began trial operations on July 7. As a core supporting measure, the Financial Services and Treasury Bureau, together with the Shanghai Gold Exchange, simultaneously launched the first phase of the “Delivery Connect” mechanism (“physical connectivity”), opening a new chapter for cross-market interconnection between the gold markets in Shanghai and Hong Kong.

What is “Delivery Connect”?

“Delivery Connect” is a gold transfer mechanism that links the Hong Kong over-the-counter market and the Shanghai on-exchange market. The Gold Clearing Company (HK) has applied to become an international member of the Shanghai Gold Exchange and opened a physical gold account. Market participants can deposit physical gold into the Hong Kong-designated warehouses of the Shanghai Gold Exchange’s international board. Through “two-way transfers,” gold can flow between the Gold Clearing Company (HK)’s system and the Shanghai Gold Exchange’s system. Currently, three banks—including Industrial and Commercial Bank of China (Asia), HSBC Hong Kong, and Bank of China (Hong Kong)—have completed two-way transfer operations as the first batch of market participants.

Practical benefits

The launch of Delivery Connect brings multiple benefits to the Shanghai and Hong Kong gold markets. First, it effectively connects the liquidity of the two markets, allowing participants to take part simultaneously in trading on the Shanghai Gold Exchange’s on-exchange market and Hong Kong’s over-the-counter market. Second, within the same entity’s custody warehousing facilities, participants can quickly reallocate standardized physical gold inventories between the two designated warehouses. The system will also link to the real-time payment and settlement system to enable “delivery-versus-payment” settlement, further reducing settlement risk and improving overall operational efficiency. Hong Kong Special Administrative Region Chief Executive John Lee said the mechanism provides participants with a streamlined setup that allows them to use their gold holdings to settle trades in both the Hong Kong and Shanghai markets.

Delivery Connect does not mean physical withdrawal

It is important to note that the “transfer” in the Delivery Connect mechanism is not “deposit and withdraw on demand.” The mechanism refers to reallocation of gold inventory between the two designated warehouses within the same entity’s custody warehousing facilities. The purpose is to support cross-market trading and settlement, not to allow market participants to freely withdraw gold from the warehouses. At present, the mechanism mainly serves inventory reallocations and account transfers at the institutional level. Whether individual investors can directly withdraw physical gold through this mechanism remains subject to further clarification of the specific rules by the authorities.