Chinese Launch Gold Price Benchmark Further Increasing Influence on World Stage
In another sign that it is becoming a major player in the world gold market, China launched twice-daily price fixing on Tuesday. According to a Bloomberg report, the move is an attempt to establish a regional benchmark that will bolster its influence in the global gold market:
The Shanghai Gold Exchange set the price at 256.92 yuan a gram ($1,233.85 an ounce) at the 10:30 a.m. session after members of the exchange submitted buy and sell orders for metal of 99.99 percent purity. Members include Chinese banks, jewelers, miners and the local units of Standard Chartered Plc and Australia & New Zealand Banking Group Ltd., according to the bourse.”
Gold has shifted from the West to the East over the past several years. China ranks first in the world in gold consumption, ahead of India at number two. China’s central bank aggressively added to its stock of gold during the last half of 2015, and that trend is expected to continue this year. The country is also making an impact on the worldwide gold market. Earlier this year, ICBC Standard Bank bought a huge gold vault in London, expanding China’s largest bank’s footprint in the city’s bullion market.
Jiang Shu, chief analyst at Shandong Gold Financial Holdings Capital Management Co., told Bloomberg that the gold price fix was meant to further increase China’s role in setting global prices, and to ensure the country’s influence matches its significance as a consumer.
There is also a longer-term strategy, according to Jiang:
Having more sway in the gold market befits the long-term strategy of expanding the yuan’s role as a global currency.”
Could the Chinese be positioning themselves to ultimately create a gold-backed currency?
Last year, Marc Faber said we should prepare for just such a move. We reported last fall that a gold-backed Chinese currency could eventually replace the USD as the world reserve currency. And in a recent column in the Washington Times, L. Todd Wood said China could someday achieve global financial dominance in one fell swoop – the day it announces its currency is backed by gold.
Think about it. Imagine the day this happens, sometime in the near future. China announces a move to a gold-backed currency. The US dollar is dethroned from its perch as the world’s global reserve currency as America’s sovereign debt has surpassed $30 trillion with trillions more in unfunded liabilities. The bond market starts to wonder if America has the will or the financial ability to pay back what it owes the world, so it starts to demand more compensation for lending America any more money. In short, an interest rate shock that could seriously harm our economy. At the same time, the value of the dollar could fall — a good old-fashioned currency crisis. “
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