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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The chart could mislead people. More yuan for each unit of gold can mean many things and one is that yuan quantity is increasing faster than gold quantity (and USD quantity). More yuan would need to be created to meet demand when the yuan replaces the dollar in international trade. A 100 RMB per gram peg seems a likely target if China really would promise gold to support the value of their paper currency. With that peg China avoids gold redemption while triggering a global surge in yuan demand. Banks aren’t stupid, they still want to hold gold and let others trade promises. With that peg more gold would rush to China and dollars would return back to the US to discover inherent value. Before a peg like that happens it would be far better to buy yuan than gold. Keep in mind though that the yuan would not be backed by gold as much as a promise for gold.
Is this a goodtime to buy gold, or should one have a program of increments for cost averaging? Is gold possession better than gold stocks?
Anybody (or entity) fixing the price of gold, warrants distrust since it’s impossible to ascertain their true objectives. For China, that’s like self insuring (without any premium reserves) their newly acquired and costly assets. It’s funny how “fixing” the price of anything always serves a very singular purpose while screwing the greater good. Between London, New York and Washington (DC), we’ve seen the impact of such interference already on gold and the world. Adding Bejing into that ungodly mix spells disaster for a lot of people.
China is just another country,that believes in govt power to fix all problems.They aren’t going to give up their ability to manipulate the currency,by backing it with gold.Gold backing will only happen,when all these dishonest fiat currencies crash and govts are forced to gold backing,to restore confidence.
I haven’t heard Peter of anyone else mention the recent Panama papers as a positive for gold.After the Swiss gave up secrecy and now this Panama revelations,I think a lot more rich,trying to protect their assets,from govt seizure(taxes,etc),might start buying physical gold,to hide out,since paper is losing its privacy.
If the price of gold at the Shanghai Gold Exchange differs significantly from that of the London Gold Exchange, it will set up an arbitrage situation. Traders will buy from the lower-priced exchange and sell to the higher-priced exchange.
This is an inherently unstable situation, and will tend to drive the prices toward and equilibrium with them being nearly the same.
In the end, what can the Shanghai Exchange really do to affect prices? Possibly nothing.
In my humble opinion, I would suggest to you that if you don’t have gold in your hand, you don’t have gold. Anyone who is paying attention knows that this government and the wall street bankers are completely dishonest and both are in serious financial trouble. Banks and the government have already made moves to hold taxpayers responsible for bank debt, instead of bank investors and we now live in an age of the Cyprus example and negative interest. Think about it.
“From the frying pan into the fire,” that’s how Lawrence Williams of Sharps Pixley described SGE’s gold benchmark, but I think Koos Jansen of BullionStar does not share such suspicion.