A yuan-denominated gold benchmark started operations in Shanghai on Tuesday, pushing China one big step closer to becoming a price determiner for the precious metal. What impact will the new benchmark have on China and gold traders? 

The gold market is an important part of the global financial market. And because of that, almost every country in the world wants to have the power to set prices or at least have a say in the matter. Eighty percent of the pricing power is now in the hands of London and New York. Experts say the launch of "Shanghai Gold" means China is making significant progress in gaining gold pricing power.

The Chinese benchmark price will be derived from a 1 kilogram-contract to be traded by the 18 members of 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 that Chinese investors trade gold with the yuan instead of the US dollar. That boosts China's pricing power in the international market and also fends off exchange rate risks.

Experts say that with the launch of the yuan-denominated gold benchmark, the Shanghai Gold Exchange can gain more power to compete with the London Metal Exchange and the New York Commodity Exchange.