China seeks bigger sway in gold trade

The global platform will first host spot physical contracts for gold and other precious metals, before aiming to launch derivatives down the line, said a third source who is directly involved in the launch of the international exchange.

"We are not just encouraging foreign banks but also producers and other entities," added the source.

Top 10 consumers of gold in the world

Gold rush in Henan

China, the world's biggest buyer of raw materials from copper to coal, is pushing hard to establish pricing benchmarks for a number of commodities.

Gold, along with oil, could be among the first to be opened up to foreign players. The free trade zone in Shanghai is set to see international energy trading by hosting the country's first crude oil futures.

Asian voice

The Shanghai exchange is looking to launch three yuan-denominated physical gold contracts, of 100 grams, 1 kg and the bigger London good delivery bar weighing 12.5 kg, said another source who has received a draft prospectus from SGE.

Contract specifications for silver, platinum and palladium were also being discussed, though the sources said specifications and participants had not yet been finalized. The exchange is expected to be launched by the fourth quarter.

Even if China lures foreign players, the exchange would still need to see full convertibility of the yuan and enough liquidity on the exchange before it can be considered to operate on a par with other hubs.