Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

A Nightmare Before Christmas: China Set to Launch Yuan-Denominated Oil Contracts

  by    0   0

China wants to dethrone the dollar and it could take a step in that direction before the end of the year.

According to numerous reports, China is prepared to launch a yuan-denominated oil futures contract before Christmas. Last week, the Shanghai International Energy Exchange successfully completed a fifth round of yuan-backed oil futures testing. According to a report by RT, the organization has met all the listing requirements and is set for an official launch. 

Chinese trader Yuan Quwei told Bloomberg the holiday season would be the perfect time to get oil trading in yuan off the ground.

An official launch during Christmas would be appropriate. The Western market would be quiet and allow the Shanghai exchange as well as Chinese investors to adjust in the early days.”

This could be a nightmare before Christmas for the petrodollar.

In June, China took the first step toward establishing a “petroyuan” when it launched a direct trade relationship with Russia, allowing oil purchases to be made strictly in the Chinese currency. But China faces hurdles as it tries to establish similar relationships with other oil exporters. The yuan is still widely viewed as unstable and illiquid. Economist Yao Wei told Bloomberg the yuan-based contract “has the potential to greatly help China’s push for yuan internationalization,” but Bloomberg noted the hurdles the Chinese face.

As the world’s largest energy consumer and an increasing source of investment capital for oil-producing nations, China has an interest in using its own currency rather than that of a geopolitical competitor. One hurdle for setting up a rival to Brent or West Texas Intermediate: Overseas oil producers and traders would need to swallow China’s capital controls and penchant for occasional market interventions.”

To help allay international fears, China may back some yuan-based oil contracts with gold. Last fall, the Chinese announced the launch of a gold-backed, yuan-denominated oil futures contract.  These contracts would be priced in yuan, but convertible to gold. As Alasdair Macleod, head of research at Goldmoney, told the Asian Review, including an option to have the contract paid in physical gold would ease some of the wariness oil exporters have about the yuan.

It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either.”

A successful gold-backed Chinese petroyuan could be bad news for the US dollar and for the broader US economy. The dollar’s strength is highly dependent on its use as an oil-trade vehicle. If the yuan begins to undermine the dollar’s position, we could see a steady decline in the greenback.

While the rise of the petroyuan is a nightmare for the dollar, it could be good news for gold. If the Chinese gold-backed, yuan-denominated oil futures contracts prove successful, it could push the yellow metal higher as the petroyuan further erodes the strength of the dollar. And as NewsMax reported, the Chinese move is significant for gold in a more basic sense.

For the first time since our nation abandoned the gold standard decades ago, physical gold is being reintroduced to the global monetary system in a major way. That alone is incredibly good news for gold owners.”

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Summer Feeling Hotter Than Usual? Gold Could Be Too.

Certain climate scientists, research economists, and precious metal investors agree: This year could be one of the hottest on record.

READ MORE →

Metal of the future? Gold‘s uses in technology

While demand for Gold as an investment has risen greatly historically, and particularly over the past year, recent technological discoveries provide powerful potential for Gold to increase in prominence as an industrial resource. While gold does provide an excellent and relatively safe store of value, its industrial use could rapidly increase its price and universal […]

READ MORE →

Gold’s Natural Scarcity Propels its Valuation Growth

The U.S. abandoned the gold standard in 1933. But ninety-one years later, in the midst of an inflation crisis, investors are flocking back to the original. The U.S. government is set to print about $200 billion in bills in 2024. That’s $548 million for every day. Despite the rampant inflation reducing consumer purchasing power around […]

READ MORE →

SchiffGold Exclusive: Utah State Representative Speaks on New Precious Metals Law

As the U.S. economy progresses toward monetary catastrophe, individual states are taking action to preserve and enable the use of sound money. Utah recently passed HB 348, which took effect in May and authorizes the state to invest a portion of its funds in precious metals. State Representative Ken Ivory sponsored the bill, and in […]

READ MORE →

Chinese Central Bank Halts Gold Acquisitions

China has called quits on its 18-month gold buying spree, causing precious metal prices to stumble this week as the world’s largest buyer unexpectedly closes its tab. In 2023, the People’s Bank of China purchased more gold than any of the world’s other central banks, swelling its reserves of the precious metal to more than […]

READ MORE →

Comments are closed.

Call Now