The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center.
"Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region," said Sunil Kashyap, managing director at Scotia Capital in Hong Kong, adding that the facility was the first with official government backing in the region.
The Hong Kong Monetary Authority, which functions as the territory's unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in an earlier statement.
The monetary authority reported $63 million in physical gold reserves as of July 31, according to its International Reserves and Foreign Currency Liquidity statement. The authority wouldn't disclose where the reserves are held, but local media reports cited gold traders as saying that London's the most likely location.
Traders said the new depository facility could also foster new financial products, such as exchange-traded funds based on precious metals.
The 3,660-square-foot depository, located at the city's main Chek Lap Kok Airport, will serve as a "storage facility for local and overseas government institutions," according to the government statement.
Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group Ltd., said that could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year.
"Central banks are increasingly aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal," he said.
Meanwhile, local newspaper reports said the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs.
Marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility, according to reports citing Raymond Lai, finance director with the Hong Kong Airport Authority.
Efforts will also be made to reach out to commodity exchanges, banks, precious-metals refiners and ETF providers, the reports said.
Management firm Value Partners planned to launch an ETF gold fund that will use Hong Kong instead of London as a repository for the gold backing the fund, local reports said Thursday