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China Officially Enters The Gold Market: Full Release Of PBoC's Plan To Expand And Develop China's Gold Infrastructure

Tyler Durden's picture





 

The moment many gold bulls have been waiting for - the Chinese Central Bank has just released a directive informing everyone it is commencing the development of a healthy gold market. In the release (below), the PBoC stressed the need to develop the market to serve the overall situation
of China's gold industry, based on improving the competitiveness of China's financial markets, effectively strengthening innovation, and promoting the
formation of multi-level market system. The PBoC has asked the Shanghai Gold
Exchange, Shanghai Futures Exchange and commercial banks to become actively engaged in developing a national gold market. With China owning a mere 1,064 tonnes  of gold (sixth in the world and well behind both France and the GLD ETF in terms of holdings), which represent just 1.6% of its reserve holdings, there is only one way to interpret this borderline revolutionary press release. China has now officially entered the gold market.

More from Bloomberg:

China, the world’s largest gold producer, will support overseas investment plans by “large- scale” bullion companies by backing them financially, the People’s Bank of China said.

Banks should extend credit lines to gold producers and offer loans for overseas acquisitions, the central bank said today in a statement on its website. The government will “support” the companies when they issue corporate bonds and help reduce financing costs, it said, without clarifying what that meant.

This is the first time the Chinese government has singled out bullion producers for financial support in overseas purchases. Global gold mining takeovers this year set a record after Kinross Gold Corp. yesterday agreed to buy Red Back Mining Inc. for about $7.1 billion.

Full PBOC release google-translated from Chinese:

Improve the market system   To promote the healthy development of the gold market

Recently, the People's Bank, Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Finance, State Administration of Taxation and the Commission jointly issued the "gold on the market for a number of opinions" (silver ?2010? No. 211), clearly the gold market The general idea of future development and major tasks.

Comments stressed the need to fully understand the gold market to promote the importance of healthy development. That featured the gold market is conducive to further improve the financial market system, improve the competitiveness of financial markets; help to promote industrial structure adjustment and upgrade of gold, the pace of industrial development; help broaden the investment channels to meet the residents of investment demand.

Opinions should effectively clear the gold market for development. Stressed the development of the market to serve the overall situation of China's gold industry, based on improving the competitiveness of our financial markets, effectively strengthening innovation, promote the formation of multi-level market system. Asked the Shanghai Gold Exchange, Shanghai Futures Exchange and commercial banks to do good work related to the gold market.

The view that the gold market to focus on strengthening the service system. Actively promote the gold market trading and disaster recovery and other infrastructure, rich market trading, improve the standard of the gold market determined system, improve storage and transportation system, the gold market, gold market to improve and strengthen the clearing services.

Views clearly, the gold market to further improve the system and related policies. Steady progress in the gold market laws and regulations and other related systems. In tax policy, the Shanghai Gold Exchange and Shanghai Futures Exchange, the gold under the existing provisions of the tax policy research to promote sound investment and commercial bank gold gold business tax policy. Expansion of import and export volume of gold qualified commercial banks to further develop the gold leasing market, widening the supply channels for physical gold. Clearly necessary to improve the gold market currency policy to promote the gold market opening, really good job in the gold market financing.

Comments stressed the need to effectively prevent the risk of the gold market.  That relevant departments should earnestly perform their duties, increase communication and coordination, and strengthen supervision of the gold market. Asked commercial banks to increase risk control, and strengthen the relevant system. Required intermediaries to strengthen management of self-discipline, standardize the conduct of its members, to maintain order in the gold market.

Opinions, we must protect the interests of investors. Required to take various forms, enhance investor education and to strengthen the training of employees in the gold market, improve the quality of employees, regulate the behavior of the gold market players.

 


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Tue, 08/03/2010 - 05:40 | Link to Comment Hansel
Hansel's picture

I'm skeptical.  Is China entering the gold market, or is China entering the gold price suppression scheme?  They want to develop a futures exchange.  The translation mentions something about expanding its gold leasing market.  They want to "prevent the risk of the gold market", to "maintain order in the gold market", and to "regulate the behavior of the gold market players"...

Tue, 08/03/2010 - 07:16 | Link to Comment Zero Debt
Zero Debt's picture

This type of vague language along with the usual "stability" talk is pretty common in official announcements and somewhat a mainland feature. If we read through the lines though, a more realistic interpretation would be that the bank has been given the political green light to develop this market, starting with some baby steps and moving on a grander scale in the near future, increasing investor freedom while keeping a close watch of the developments. The fact that very practical matters such as storage are mentioned is an indication that they see real issues with bottlenecks in the efficient functioning of the physical market on a larger scale.

What is also worth to point out is also that the Hong Kong and the Chinese gold and silver association is not mentioned, only Shanghai. This reinforces my belief that this is mainly an internal affair and not an attempt to make any bold steps in the international markets. There is already an exchange in Hong Kong doing this, CGSE.

www.cgse.com.hk


When comparing the development of the real estate market with the gold market in China, one can easily conclude that the market for gold is underdeveloped and not as accessible. If more retail channels are open for gold investment, in particular, physical investment, it is going to increase the number of potential new entrants (who are the majority that hold little or no gold) rather than increasing the number of sellers.

There is also the likelihood that mainland investors will consider diversifying their property holdings with gold in the anticipation of a stalled or falling property market or inflation. As most mainland investors in the last decade has been living on a steep curve of valuation increases of property, it has most likely appeared to them as they are walking on flat land. Since the Shanghai stock market crashed, stock investors have been humbled. When the time turns to property, diversifying hoarding-oriented assets would likely be a more common concern among mainland investors.

Tue, 08/03/2010 - 07:30 | Link to Comment Peterpaul
Peterpaul's picture

Gold is readily available in China's retail market. One can buy bullion directly from some banks at the teller window. You can keep it yourself or have the bank store it in your name for a nominal fee (something like one dollar a month!). The "tax" on gold for buying and selling is (or was in 2006) 1.5% each way - buying in selling. Furthermore, 24 karat gold is readily available in even the smallest of towns. Even better, the government shops will buy it back from you at about 90% of spot market value. 

 

In short, China has an incredibly developed retail market for gold bullion for investors of all sizes...

Tue, 08/03/2010 - 08:06 | Link to Comment Zero Debt
Zero Debt's picture

Incredibly developed is an overstatement. 90% is pretty lousy compared to the bid-offer spread in Hong Kong of less than 0.2% at commercial banks for investment gold bars.

Tue, 08/03/2010 - 05:42 | Link to Comment TwoShortPlanks
TwoShortPlanks's picture

It will be interesting to see how much of an effect this has on physical gold and certificate gold, in the short and near term future.

Dropping US T's and picking up physical gold hey...

Tue, 08/03/2010 - 06:02 | Link to Comment Troy Ounce
Troy Ounce's picture

I understand GATA has been in contact with the Chinese a couple of times.

To do what? Why? To learn how to suppress the gold price or to learn how not to suppress the gold price?

The official market is such an opaque market with spin, half thruths, deceit and manipulation that one has to sceptical about everything that is being said officially.

 

Tue, 08/03/2010 - 06:02 | Link to Comment ZEITGEIST
ZEITGEIST's picture

CALLING JOHNNY BRAVO...CALLING JOHNNY BRAVO..PLEASE REPORT TO BEN BERNANKE FOR THE OFFICIAL SPIN..AND THEN PLEASE DO ALL A FAVOR ON THIS SITE ALONG WITH ANY OTHER YOU INFEST..PLEASE DROP DEAD ASAP FROM THESE SITES AS WE NO LONGER NEED YOU PARASITIC BANKSTER LINGO...MUCH APPRECIATED...NOW WE CAN MOVE ON TO OFFICIAL BUSINESS OF ALL STATING HOW NORTH OF 5000 GOLD WILL GO

Tue, 08/03/2010 - 06:05 | Link to Comment Troy Ounce
Troy Ounce's picture

+ 1 oz

Tue, 08/03/2010 - 06:22 | Link to Comment Fred C Dobbs
Fred C Dobbs's picture

I wonder if this was in his TA calculations.  

Tue, 08/03/2010 - 08:11 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

Yes, this move by China was written all over the charts. You see, when you print a chart out, and look at the 200, 100 and 50DMA then align these with a volume adjusted RSI, CCI and ROC while observing the ichimoku cloud in 3 dimensions to get the right places to fold the chart, then through the age-old art of technical origami analysis we do indeed arrive at the following conclusion;

http://www.youtube.com/watch?v=X7RhqOWOBAY&feature=related

So dont write off Jonny Bravo just yet.

Tue, 08/03/2010 - 06:15 | Link to Comment jmf
jmf's picture

Moin from Germany,

remember the "Chinese dumping worthless currency for gold " video.....

http://www.youtube.com/watch?v=SbUvvfJakfI

Lets all hope they can steal some thunder from NY & London.....

Tue, 08/03/2010 - 06:17 | Link to Comment unwashedmass
unwashedmass's picture

gee. wonder what it was about the Comex that made them feel like they needed some place else?

 

Tue, 08/03/2010 - 06:26 | Link to Comment Thorlyx
Thorlyx's picture

Gold Bitchez

Tue, 08/03/2010 - 06:28 | Link to Comment tom
tom's picture

Correction: that's 1,054 (metric) tonnes of gold, which is worth about $40 billion.

Tue, 08/03/2010 - 06:45 | Link to Comment Albert Dawes
Albert Dawes's picture

I've just finished to read this novel:

http://www.amazon.fr/Pour-tout-lor-du-monde/dp/2221113934

 

interesting... ;-)

Tue, 08/03/2010 - 06:47 | Link to Comment nmewn
nmewn's picture

Related.

Of Nobels, hubris, smoke screens and warehouses with pretty wallpaper...LOL.

http://www.bloomberg.com/news/2010-08-03/blythe-masters-says-don-t-panic...

 

 

 

 

 

 

 

Tue, 08/03/2010 - 06:54 | Link to Comment doggings
doggings's picture

yes the technical analysis saw this coming miles off, a rising wedge is never wrong, lol.

Tue, 08/03/2010 - 07:04 | Link to Comment Goldenballs
Goldenballs's picture

Bye,Bye to the US$ then.Washington won,t be impressed,wonder if oil will start to be traded in Gold,that would be very interesting.One thing is certain we might see the true price for physical if they don,t want paper promises / confetti ...................

Tue, 08/03/2010 - 07:05 | Link to Comment Sunshine Down t...
Sunshine Down the Road's picture

Israeli tanks engaged in combat on the Lebanese/Israel boarder. Ahh, a mid-summer's night dream in the Middle East.

Tue, 08/03/2010 - 07:10 | Link to Comment Sabremesh
Sabremesh's picture

The fact that China may be pursuing a gold hoarding policy is not the principal significance of this move. The Chinese would appear to be setting up a system to rival the Comex and the LBMA. An open and transparent PHYSICAL gold exchange would challenge London and annihilate the Comex.

Tue, 08/03/2010 - 07:15 | Link to Comment old naughty
old naughty's picture

Such a high profile announcement...It needs to be highly successful.

Behavior regulating, yes... and gold is such a lure for the growing middle class...perhaps it will help grow the financial market to make up for the shortfall in manufacturing. Besides output from all of those gold mines will need stable demand.

Yes, China is officially in the gold market, helping the manipulation.

 

Tue, 08/03/2010 - 07:41 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

China has a long history with gold. They do not need to set up their own exchange to engage in manipulation; if they wanted to play paper games they could do it in London or on comex.

Tue, 08/03/2010 - 07:48 | Link to Comment Goldenballs
Goldenballs's picture

Looks like they are sick of paper games.Midnight Oil being burnt and panic at the fed,nothing official but they must be very worried,looks like Fort Knox will now be paying for all those imports that they won,t accept worthless paper for ...................

Tue, 08/03/2010 - 10:15 | Link to Comment Paper CRUSHer
Paper CRUSHer's picture

MISSION UPDATE STATUS 6:

"Sergeant Tyler,I've just received a radio transmission from OutPost-LBMA Sir"

"Sir,the Chinese have deployed a Gold Exchange."

"DO NOT RETALIATE....REPEAT.....DO NOT RETALIATE"

"Ok soldiers i want you to continue to track their movements"

"Affirmative Sir"

"Corporal,what do you make of this ?......"

"I dunno...may its a trap or something...dammit,wish i knew"

"Damn Bastards....Shit....Ok....HEY....YOU WANNA WAR....YOU GOT A WAR"

"Ok Commander,execute Operation Grand Scam"

"Sgt.Tyler get on the radio and instruct the Fort Knox Gold Depository to moblize those Gold Plated Lead Bars ON THE DOUBLE"

"Serg,I'm gett'n another faint transmission Sir.They are all out of those.Repeat all out,Sir"

"The dumb bastards conducted the last(audit)inventory check back in '1955 damn the idiots".

"Commander, how many of those TUNGSTEN loaded GOLD BARS  are remaining from our last mission"

"Only a few Serg"

"Oh Shit"

"Alert the IMF BIS,COMMEX, the GLD Gold Trust n' all the ETFs and give me everything they have.I want all those .9999 CALIBRE MUNITIONS delivered NOW"

"SIR, LET ME REMIND YOU THEY ARE ALL BACKED MOSTLY BY PAPER SIR"

"SHUT THE HELL UP PRIVATE.WHO ASKED YOU FOR YOUR OPINION YA DUMBASS.WHAT THE HELL DO YOU WANNA DO? ALERT THE WHOLE F***** WORLD?"

 

 

Tue, 08/03/2010 - 07:47 | Link to Comment aus_punter
aus_punter's picture

won't this increase the supply of gold - how is that bullish in isolation ?

Tue, 08/03/2010 - 07:54 | Link to Comment Goldenballs
Goldenballs's picture

It dosen,t matter if Gold increases,if China,s currency becomes Gold backed it may well take over as the worlds reserve currency.They won,t want worthless printing press dollars or guaranteed paper.Imagine if they issued spendable Gold and Silver currency imagine the buying power.Politicians in the West need to wake up fast to what could ultimately break their economies ..................................

Tue, 08/03/2010 - 08:51 | Link to Comment Moonrajah
Moonrajah's picture

I sure hope China doesn't think it can tungsten it's way out of this one.

Tue, 08/03/2010 - 08:54 | Link to Comment Chuck Mentzel
Chuck Mentzel's picture
  1. Dagong goes global with its first sovereign risk ratings, saying - we are the biggest creditor, we rate you.
  2. A few days ago, CIC, one of their biggest SWFs, was dumping Morgan Stanley's shares by the millions.
  3. Now they focus on "improving" the gold market.

Nothing unusual about this sequence.

Really.

Tue, 08/03/2010 - 09:29 | Link to Comment Segestan
Segestan's picture

Good move on China's part... perhaps they should officially denounce communism? Anything that helps bring actual physical to market is good government intended or not.

Tue, 08/03/2010 - 11:02 | Link to Comment trav7777
trav7777's picture

Sounds like China wants to support *production* at below cost.  IOW, a subsidy

Tue, 08/03/2010 - 12:19 | Link to Comment ZEITGEIST
ZEITGEIST's picture

anyone seen Johnny Bravo..funny how he is MIA...probably in a panic running to the coin shop

Tue, 08/03/2010 - 14:24 | Link to Comment Goldenballs
Goldenballs's picture

Johnny Bravo is unable to slip out of work as the place he works is in lockdown awaiting its next delivery of Gold paint and rust remover,getting ready for an audit apparently ............

Sat, 10/09/2010 - 10:20 | Link to Comment senthil456
senthil456's picture


There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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