Complex Made Simple

World gold trade focused on Dubai

The Netherlands, where I am based, went through a period known as the Golden Age. This refers to the country's 17th century heyday, when Holland was the world leader in trading (commodities), science and art.

And it was during this time that the first share was issued. This Dutch invention introduced a new form of financing: Equity. The world’s largest company at that time was a Dutch trading group, VOC, and it issued shares to gather in money with which to invest.

A lot has changed since then; after all, the economic cycle is dynamic. Today’s world shows a different picture, and things are still evolving.

Currently, rapidly developing regions, such as Asia and the Middle East are becoming more powerful, often at the US’ expense. Our rapidly changing economy is also facing changes in the world of gold.

The Dutch traded a lot of gold in the past and Amsterdam was the world centre for gold and diamond trading for a long time. These days, Dubai is becoming the world centre for gold and gold trading.

Gold trading hub

With the Middle East, China and India as important importers of gold, Dubai can be viewed as the principal hub of trading and distribution, as witnessed by the World Gold Council’s recent launch of Shariah –compliant gold shares on the Dubai International Financial Exchange, in conjunction with the Dubai Multi Commodity Centre.

According to GFMS Gold Survey (2006) the world’s production of gold (2,919 tonnes) is distributed geographically in the following proportions; to China (800); India (700); the Middle East (535); Europe (444); North America (235); Russia (87); South America (75); and Australia (10).

Interest in gold has mushroomed recently, partly due to its price surge. The Dubai Gold & Commodity Exchange (DGCX) profits from this interest in commodities in general and in gold in particular, as witnessed by the launch of trading in

In 2007 a total of 1 million commodity contracts (worth $35bn) were traded, showing a rise of 50% on 2006 volumes. Gold futures remained the highest contributor, accounting for a total of 700,000 contracts over the course of the year, valued at approximately $15bn.

Principal exchanges

So which exchanges can be viewed as DGCX’s competitors or rivals?
The London Metals Exchange (LME) is the futures exchange which hosts the world’s largest market in options and futures contracts in base and other metals.

As the LME offers contracts with daily expiry dates up to three months from trade date, as well as longer dated contracts, it also allows for cash trading. It offers hedging, worldwide reference pricing and the option of physical delivery to settle contracts.

Contrary to what you may expect, gold and silver are not traded on LME (so it is not a direct competitor of DGCX), but on the over-the-counter (OTC) market usually referred to as the London Bullion Market by the members of the London Bullion Market Association. Platinum and palladium are traded on the London Platinum and Palladium Market.

In Asia you can look at the Multi Commodity Exchange (MCX) in Mumbai, the Tokyo Commodity Exchange (TOCOM) and the National Commodity Exchange Limited in Karachi.

In the Americas: The Brazilian Mercantile & Futures Exchange (BMF), the New York Mercantile Exchange (NYMEX) and the Chicago Mercantile Exchange (CME).

CME and Chicago Board of Trade (CBOT) merged in the summer of 2007 and since then the CME Group (“the Merc”) has been the world’s largest futures exchange. In the near future, mergers and acquisitions between exchanges will continue; after all, the world is dynamic, and so is the economic cycle.