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Sun 17 Feb 2008 04:43 PM

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Dubai considers gold futures contract

Dubai Mercantile Exchange plans to develop metals contracts with dollar-hedge stalwart as priority.

The Dubai Mercantile Exchange (DME) plans to develop a gold futures contract this year, rivalling an existing contract in the Gulf emirate, industry sources said on Sunday.

"DME is looking at a number of metals contract, but gold is their priority," a source inside the bourse said.

"The exchange has already started talking to some players in the gold market, but it has not yet developed a platform for the contract."

Dubai is also a long-established market for gold bullion as well as wholesale and retail jewellery. Trade has benefited from strong demand from the Arab world and proximity to India, the world's main gold market.

The Gulf's commercial heart launched the region's first gold futures exchange, the Dubai Gold and Commodities Exchange (DGCX), in 2005 as the economies of Gulf Arab nations boomed on windfall oil income.

At present, Dubai's physical gold traders use derivatives on DGCX and other international exchanges such as New York's COMEX or the Tokyo Commodities Exchange (TOCOM).

DGCX allows traders to hedge on Saturdays and Sundays, active trading days in Muslim Dubai where the weekend falls on a Friday.

"Some traders are sceptical of another gold contract being launched in Dubai, since DGCX is already meeting the demand of the market," a bullion trader said.

"But it seems DME is still determined to go ahead with their plans despite that," he added.

The DME has managed to survive the curse of past Middle East crude oil futures contracts, which have failed within months, but has yet to establish itself as a viable vehicle for hedging and speculation.

The bourse is a joint venture between the governments of Oman and Dubai, and the New York Mercantile Exchange (NYMEX), host to the benchmark US sweet crude oil contract.

Analysts say the Middle East, whose only two commodities derivatives bourses are DGCX and DME, is seeing a growing appetite for exchange-traded derivatives.

Egypt's Cairo and Alexandria Stock Exchange (CASE) plans to start a derivatives market this year, while Saudi Arabia is considering setting up a commodities market that will be compliant with Islamic financing. (Reuters)

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