By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) -- Hong Kong is pulling all its physical gold holdings from depositories in London, transferring it to a newly-built high-security depository at the city's airport, in a move that won praise from local traders Thursday.

The facility, industry professionals said, would support Hong Kong's emergence as Swiss-style bullion trading hub and help lessen dependency upon London as center of settlement and storage.

"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 complete the transfer of its gold reserves form London by the end of the year, the Hong Kong government said in an earlier statement.

About half the HKMA's gold reserves are held in physical form, totaling about 2,000 bars valued at 250 million Hong Kong dollars ($32.35 million), according to estimates published by the South China Morning Post.

Traders said the new facility could also foster new financial products, such as precious-metals exchange-traded funds.

The 3,660-square foot depository, located at the city's main Chek Lap Kok Airport, will provide "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 of verge of implosion last year.

"Central banks are increasing aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal," he said.

Local newspaper reports Thursday 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 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.

Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.