DUBAI, Nov 9: Dubai, the self-styled "City of Gold", and India, the world's largest consumer of the yellow metal, are forming a Dubai Gold and Commodity Exchange (DGCX) to become operational in the second half of 2005, officials announced on Tuesday.

The Dubai Metals and Commodities Centre (DMCC), Multi Commodity Exchange of India Ltd (MCX) and Financial Technologies (India) Ltd (FTIL) have signed a memorandum of understanding to create the exchange in Dubai, a significant player on the international gold market which provides a gateway to India, where 700 tons of physical gold are consumed annually.

"Appropriately for the 'City of Gold,' the first contract listed on the exchange will be gold, but that will be quickly followed by other contracts," Colin Griffith, DMCC's executive director for gold and precious metals sector, told a press conference.

"As the exchange develops and gains in prominence, we expect a significant amount of trade in silver, steel, freight, cotton and energy contracts, so that we can achieve a balanced portfolio with futures and options contracts available for all listed commodities," he added.

The exchange is still subject to receiving the necessary regulatory approvals.

"This landmark achievement unfolds the real potential of the Indian technology expertise and the domain knowledge of its human intellectual capital," said Jignesh Shah, MCX managing director and FTIL chairman.

"It's a clear vision of all the partners that DGCX will emerge as a vibrant global exchange in the shortest possible time," Shah added.

Griffith said the contract would be "very liquid... almost from the start," while officials would not predict turnover for the new exchange.

"I believe the initiative we're undertaking will increase the total size of Dubai's gold trade," Griffith said.

Exports nearly doubled and the value of the gold trade in Dubai, which has launched a bid to establish itself as the Gulf's business and leisure hub, soared by more than a billion dollars in 2003 over the previous year.

David Rutledge, DMCC's executive director for commodities, described DGCX as "a significant venture," only disclosing a 50 per cent investment by Dubai, 10 per cent by MCX, an independent and de-mutualized multi-commodity exchange, and 40 per cent by FTIL, India's leading technology enterprise.

"The creation of the DGCX is a landmark achievement in the development of Dubai's infrastructure and will deliver an excellent value proposition for the global trading community," said Ahmed bin Sulayem, DMCC's chief operating officer.

DMCC was set up in 2002 to establish a commodity market and promote the emirate as a centre for the trade of gold, diamonds and commodities. Resident companies are offered free zone benefits, including a 50-year guaranteed tax holiday, 100 per cent business ownership, full ownership of business premises and a regulated environment.-AFP