End price-fixing in gold market
Gold retailers in Hong Kong and elsewhere have had a great run during the decade-long bull market for the precious metal. Now, not only have gold prices been declining, the retailers are about to be told the way they have fixed spot prices for the trade may be illegal.
Gold retailers in Hong Kong and elsewhere have had a great run during the decade-long bull market for the precious metal. Now, not only have gold prices been declining, the retailers are about to be told the way they have fixed spot prices for the trade may be illegal.
The long-standing current practice is for two local trade associations to set a daily price across the industry, which usually includes a 10 per cent profit margin. But the Consumer Council has warned it may be in breach of the new competition law.
The law, passed in 2012, aims to prevent price-fixing and other anti-competitive behaviour so consumers can enjoy a competitive environment. The Competition Commission is currently drafting enforcement guidelines. It has so far declined to comment on the matter.
The two trade groups - the Kowloon Pearls, Precious Stones, Jade, Gold and Silver Ornament Merchants Association and the Hong Kong Jewellers' and Goldsmiths' Association - want an exemption for their 600 members if the commission tries to target their price-fixing.
However, for the benefit of consumers and efficient market operations, there should be no exemption. Just as customers can now shop around for the best interest and mortgage rates, why shouldn't they be able to hunt for the best spot gold prices?
A trade representative argues that shops offering different rates would confuse buyers. Nonsense! The real fear within the trade is that if retailers can set their own prices, enhanced competition may cut into their hitherto easy profit margins and may even force some smaller operators to go under.
But there is a limit to how far large retailers could cut prices; they cannot go below costs. The comfortable cartel-like price-fixing should become a thing of the past.
The commission should go ahead and ban price-fixing. Not only would consumers benefit, but the trade would become more efficient and transparent as well.
