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

Inflation’s Up; So What?

Here’s a strange headline for you: “Gold prices near daily highs despite better-than-expected inflation in October.” This headline is bizarre on a couple of levels. First, since when are rising consumer prices and good news? And second, why wouldn’t inflation be good for gold? You really have to buy into the mainstream narratives to write […]

READ MORE →

Powell Lectures Congress About Government Spending the Fed Facilitates

Fiscal 2020 started just like fiscal 2019 ended – with a massive federal budget deficit. And that has Federal Reserve Chairman Jerome Powell worried. In an ironic bit of political theater, Powell lectured Congress about the spending he helps facilitate. The budget shortfall last month was 34% higher than the October 2018 deficit, coming in […]

READ MORE →

Student Loan Bubble Blows Up Another $32.9 Billion in Q3

American consumer debt pushed to a new record of $4.15 trillion in September. Part of that equation – the continued surge in the levels of student loan debt. Student loan balances jumped by $32.9 billion in the third quarter this year, pushing total outstanding student loan debt to a new record of $1.64 trillion. Student […]

READ MORE →

Gold Mine Output Has Flatlined

Gold mine output has flatlined over the last several years and that trend appears to be continuing in 2019. In fact, some analysts believe we may be at or near “peak gold.” According to the World Gold Council’s Gold Demand Trends Q3 report, gold mine output fell slightly with total mine production coming in at […]

READ MORE →

The Gold Market Is Strong With the Potential for Growth

Gold is the third-most consistently bought investment globally. This was just one of many findings in the World Gold Council’s recently released consumer research report that revealed a strong global gold market with the potential for future growth. Globally, there are clear perceptions of gold as a safe, durable, traditional store of value. As an investment, […]

READ MORE →

Comments are closed.

Call Now