A yuan-denominated gold benchmark has started operation in Shanghai today, pushing China one big step closer in becoming a price-setter for the precious metal.

The Chinese benchmark price will be derived from a 1 kilogram-contract to be traded by the 18 members on the Shanghai Gold Exchange. The SGE will act as the central counterparty. The benchmark price will be set twice a day, based on a few minutes of trading in each session.

The milestone move will ensure Chinese investors trade gold with the yuan instead of the US dollar. This not only fends off exchange rate risks, but will boost China's pricing power in the international market as well.