The Shanghai Gold Exchange (SGE) got the go ahead from the central bank last week to launch a global trading platform in the city's pilot free trade zone, a move that could challenge the dominance of New York and London in gold trade and pricing.

Beijing's plans to open up gold trading comes at a time when the benchmark price-setting process for precious metals is under scrutiny. Barclays Plc (BARC.L) became the first bank to be fined over attempted manipulation of the 95-year-old benchmark London gold market daily "fix" last week.

State-backed SGE has asked bullion banks such as HSBC (HSBA.L), Australia and New Zealand Banking Group (ANZ.AX), Standard Bank (SBKJ.J), Standard Chartered (STAN.L) and Bank of Nova Scotia (BNS.TO) to take part in the global trading platform, two people approached by the exchange said.

SGE, the world's biggest physical gold exchange, where domestic banks, miners and retailers buy and sell gold, could also open up the international platform to foreign brokerages and gold producers, they said.

"China wants to have more voice in gold prices," said Jiang Shu, an analyst with Industrial Bank, one of 12 banks allowed to import gold into China. "The international exchange is the first step towards gaining a say in gold pricing."

"If you don't allow foreign players to participate in your market actively, or do not push Chinese financial institutions to participate in the international market, then China's strong gold demand is only a number, not a power," he said.

HSBC and Standard Bank declined to comment, while the other banks and SGE were not immediately available for comment.

The global platform will first host spot physical contracts for gold and other precious metals, before aiming to launch derivatives down the line, said a third source who is directly involved in the launch of the international exchange.

"We are not just encouraging foreign banks but also producers and other entities," added the source.

China, the world's biggest buyer of raw materials from copper to coal, is pushing hard to establish pricing benchmarks for a number of commodities.

Gold, along with oil, could be among the first to be opened up to foreign players. The free trade zone in Shanghai is set to see international energy trading by hosting the country's first crude oil futures.

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The Shanghai exchange is looking to launch three yuan-denominated physical gold contracts, of 100 grams, 1 kg and the bigger London good delivery bar weighing 12.5 kg, said another source who has received a draft prospectus from SGE.

Contract specifications for silver, platinum and palladium were also being discussed, though the sources said specifications and participants had not yet been finalized. The exchange is expected to be launched by the fourth quarter.

Even if China lures foreign players, the exchange would still need to see full convertibility of the yuan and enough liquidity on the exchange before it can be considered to operate on a par with other hubs.

Currently, the London gold "fix" is the benchmark for spot prices, while New York's COMEX contract sets the futures' benchmark. SGE prices are tracked to gauge Chinese demand as reflected in premiums or discounts to spot rates.

Earlier this year, China's ICBC (601398.SS) - in conjunction with its acquisition target Standard Bank - indicated interest in buying Deutsche Bank's seat on the London gold fix but it is not interested anymore, sources previously told Reuters.

While physical demand has always provided underlying support to gold prices, speculative trade is what largely drives prices. With China's push for an international physical exchange, physical demand could begin to have a stronger influence.

China overtook India last year as the world's biggest gold importer and gold jewelry and investment demand was up about a third to a record 1,065.8 tons in 2013.

The influx of gold has made SGE the biggest physical exchange, with a turnover of 10,000 tons for its immediate and deferred delivery contracts, according to Thomson Reuters GFMS.

The Shanghai Futures Exchange has the world's second-most traded gold futures contract, though trading is largely limited to the domestic market with volumes of about 41,176 tons last year, still well behind COMEX's 147,083 tons.

The SGE's international board and the main exchange could eventually be merged when the yuan is fully convertible, Albert Cheng, managing director of the World Gold Council's far east region, said.

"That would become a very important exchange in the world, and Shanghai will truly become one of the three international gold centers after New York and London," he said. "No doubt, the participation in the international market is the key effort of the SGE and the current administration."