As part of Hong Kong’s five-year plan, the London Metal Exchange (LME) has signalled plans to turn metals held in the region’s warehouses into digital assets that can be used for financing.
This move comes as Hong Kong works to expand its role as a commodities trading hub.
Reuters reports that the digital assets are expected to attract more investment and trading, which is a direct goal of the city’s five-year plan. The move could also create a new revenue stream for the LME.
Tokenisation would mean that digital assets representing metal held in the exchange’s warehouses could be used for financing, such as serving as collateral for loans.
King and Wood notes that tokenisation could lead to broader retail access, as investors can ‘hold’ physical bullion through digital units that are traded on a blockchain.
“Depending on their design, tokenised products may reduce the minimum investment size and some of the operational friction associated with storing, insuring, and transferring physical gold,” the law firm states.
“We believe certain tokenised physical gold products may be structured as a form of digital warehouse receipt, representing direct beneficial ownership of underlying physical gold without necessarily constituting ‘securities’ or a paper gold scheme.”
The initiative will be discussed in early November at an invitation-only, in-person industry roundtable event.
It stems from Beijing’s 15th five-year plan, set out in March 2026, which includes plans to establish Hong Kong as a commodity trading powerhouse.
“We will leverage Hong Kong’s unique advantages as an approved delivery point within the London Metal Exchange’s global warehousing network to drive the synergised development of more commodities-related trading, risk management, and financing businesses,” the Hong Kong plan states.
In January 2025, the LME approved Hong Kong as a destination for metals warehousing, with further developments in 2026, as previously reported. As of October, there are 19 LME-approved warehouses in the city, with storage capacity of over 36,000 tonnes.
The LME is now also looking to potentially relax some of its rules for Hong Kong to allow aluminium to be stored outside, a practice that was previously in play but suspended due to concerns about weather and security.
The LME Group was acquired by the Hong Kong Exchanges and Clearing in 2012.
Hong Kong’s five-year plan
At a recent meeting of finance ministers from 21 economies across Asia-Pacific, Hong Kong leaders stressed that they are looking to make the city’s services work better, upgrading key infrastructure, securing liquidity, and bringing in more financing.
“Picture the treasury team of a company running its regional business from Hong Kong,” Dr Stephen Wong, head of the chief executive’s policy unit, says.
“It arranges funding in several currencies, pays across markets, and manages the risks that follow. Its question is: how can Hong Kong’s services help it operate more efficiently and at lower cost?”
Wong notes that this is the framework with which the market should be reading Hong Kong’s first five-year plan.
Discussions with think tanks across Hong Kong and China have highlighted a key concern: the city should focus not on delivering more products, but on making products more usable.
“Market infrastructure is the first strand, and gold is the clearest case,” Wong says.
“Hong Kong’s first five-year plan identifies gold as the entry point for a commodity trading ecosystem. Under the policy address, Hong Kong’s gold central clearing and settlement system is scheduled for launch in the first quarter of 2027.”
Full details of the plan for yuan-denominated, physically settled gold futures are yet to be announced. However, a half-rate tax concession for physical commodity trading is already being established, with further concessions planned for eligible ecosystem activities.
The move towards gold storage is also gaining pace, with the Shanghai Gold Exchange opening a vault in Hong Kong in June 2025 and beginning trials for clearing and settlement in July 2026.
“For a bullion bank, that is a visible path from trade to delivery,” Wong says.
Additional strands of the plan focus on liquidity, including wider use of the Chinese yuan across trade, investment, and financing. The final strand focuses on demand, seeking better information on who plans to invest and how assets can be used beyond investment.
Write to Amy Rotman at Mining.com.au
Main image: Unsplash
