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China One Step Closer to Becoming World’s Gold Hub

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China One Step Closer to Becoming World’s Gold Hub

- Shanghai Gold Exchange one step closer to becoming the globe’s major gold hub
- China tests system at Shanghai Gold Exchange (SGE) to establish yuan-denominated gold price fix
- SGE opened last year allowing trade in physical gold as opposed to electronic futures contracts on COMEX
- Yuan fix, which has broad regional support, will rival the century old LBMA fix
- China now world’s largest producer and buyer of gold
- Chinese government, central bank and people have affinity towards gold

gold_bars_goldcore

Chinese ambitions to become the world’s leading gold trading hub and international financial hub have taken another step forward.

Trials were quietly conducted to launch a yuan-backed gold pricing benchmark last month, according to Reuters today.

China, the world’s largest gold producer and buyer, feels its market weight should entitle it to be a price setter for gold bullion. It is asserting itself at a time when the established benchmark, the century old London ‘gold fix’, is under scrutiny because of long-running allegations of price manipulation.

The new Chinese gold price benchmark may be launched before the end of the year.

The Shanghai Gold Exchange (SGE) opened last year and trades in contracts for physical gold (1 kilogramme). It has quickly been establishing itself as the fastest growing gold trading hub in the world as many participants in the gold market move away from the COMEX.

Many investors and miners have grown disillusioned with the COMEX system due to concerns that the price of gold is being manipulated lower by dumping contracts for vast amounts of gold onto the market which leads to sharp price falls and curtails positive sentiment and momentum in the gold market and reduces investment demand.

The new yuan benchmark is set to rival the century old LBMA system. It has broad regional support with the participation of foreign banks as well as those from China including western banks.

“Top Chinese banks including Industrial and Commercial Bank of China (ICBC) and Bank of Communications are members of the exchange, along with foreign banks Australia and New Zealand Banking Group, Standard Chartered and HSBC, among others,” according to Reuters.

The LBMA has been under pressure in recent years due to lack of transparency in the price fixing process. While the yuan fix will be determined by “members of SGE's international board”, it will be against a backdrop of contracts for physical gold trading at the SGE.

The LBMA benchmark, on the other hand, is determined by bullion banks on the basis of undisclosed “over the counter” trades. The LBMA said last week it was considering the possibility of creating an exchange for gold trading in the city, a shift away from the over the counter (OTC) system.

shanghai_gold_withdrawals_goldcore
SGE Gold Withdrawals - 50.796 tonnes for the week ending April 24th

The LBMA has been engaged in a public relations campaign to regain its credibility. The old system was reformed last year but the current system is, however, little more transparent.

Central banks are now being considered for membership of the LBMA. This will further undermine the LBMA’s credibility among some participants in the physical gold market given concerns that certain central banks may be involved of gold price manipulation.

An LBMA statement excuses the association from providing transparency, stating, “the role of the central banks in the bullion market may preclude 'total' transparency, at least at public level.”

At the same time it should give extra clout to the besieged association who, in their restructuring program, were forced to give some Chinese banks seats on their board. These banks have no say, however, in determining the benchmark.

The move to establish a yuan-based gold pricing benchmark is only natural. China is the world’s largest gold producer and officially the second largest buyer of gold. Although many believe that China has surpassed India in terms of gold demand and SGE withdrawals suggest this to be the case.

As Reuters report, “China … feels its market weight should entitle it to be a price-setter for bullion and it is asserting itself at a time when the established benchmark, the century-old London fix, is under scrutiny because of alleged price-manipulation.”

It will be very interesting to see how the SGE and the LBMA interact in the coming years. The increasing importance of the SGE means that the physical gold market should assume more importance, as should the fundamentals of global physical supply and demand.

Shanghai and the SGE is emerging as the leading international gold bullion trading hub. This is a positive for gold due to the People’s Bank of China (PBOC) and Chinese governments favourable stance towards gold.

A favourable stance which is mirrored by the favourable disposition of the Chinese people - culturally the Chinese view gold as an important store of value.

Important Guide to Currency Wars: Currency Wars: Bye, Bye Petrodollar - Buy, Buy Gold

 

MARKET UPDATE

Today’s AM LBMA Gold Price was USD 1,191.25, EUR 1,063.41 and GBP 785.22 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,187.40, EUR 1,070.94 and GBP 785.59 per ounce.

Gold and silver saw small price gains yesterday of 0.35 and 0.73 per cent to $1,192.90 and $16.54 per ounce respectively.

gold_chart_goldcore_06-05-2015

In Asia overnight, Singapore gold prices ticked higher initially prior to giving up those gains and weakness has continued in London trading this morning.

European stocks stabilised after Asian stocks fell today in line with weak U.S. markets as equities investors were spooked by a vicious selloff in sovereign bonds globally and a very large U.S. trade deficit. The disappointing U.S. trade data for March painted an even bleaker economic picture of the first quarter and led to the dollar and stocks coming under pressure.

The sudden spike in bond yields is being mirrored by an equally rapid rally in resources. This means investors globally are becoming less concerned about the risk of deflation and more concerned about the risk of inflation or stagflation.

Oil prices rose again today and are 15% above their recent lows. Prices are holding near their 2015 highs, continuing a month-long rally that was supported by renewed weakness in the dollar and a disruption to oil supplies from Libya.

gold_chart_2_goldcore_06-05-2015
Gold in U.S. Dollars - 5 Years

Volumes in the global spot gold market have fallen to their lowest in a year, with shrinking liquidity and a slowdown in interbank trade making customers reluctant to transact on a large scale

As the first week of May draws to a close, Reuters reports that “sales of gold American Eagle coins by the U.S. Mint have had a relatively soft start to the month, with 4,500 oz of coins sold so far (April's total was 29,500 oz, down by a third from March). Silver Eagle coins have totalled 783,500 oz.

In Europe in late morning trading gold bullion was flat at $1,192.44 an ounce. Silver was down 0.6 percent at $16.51 an ounce and platinum fell 0.1 percent at $1,146 an ounce.

Important Guide: 7 Key Gold Must Haves

 

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Wed, 05/06/2015 - 14:50 | 6066603 Dragon HAwk
Dragon HAwk's picture

And when the Aliens show up and say, technology for sale... payment in Gold only...

Wed, 05/06/2015 - 13:53 | 6066396 Prober
Prober's picture

There is one HUGE factor that never existed before, that constitutes a super rigid anchor of stability for fiat currencies, and that the precious metals fanatics NEVER recognize and take into consideration:

A majority of the populations in all the highly developed countries are dependent upon their government’s jobs, retirement, healthcare and entitlement programs

ALL of which are run by the regime

in the currency of the regime’s choice

VERY few of these majorities have ANY significant savings, EVEN FEWER have any significant holdings of precious metals

THEREFORE

the overwhelming majority of the populations in all the highly developed countries are dependent upon AND SUPPORT their government’s choice of currency, whatever it is or is changed to

AND

the regimes will NEVER make their currencies base in any way upon precious metals

because

that would limit their monetary, fiscal, and political power.

Gold and silver are monetary anachronisms, just like beads, seashells, salt, pelts, notched sticks, etc, etc.

Wed, 05/06/2015 - 14:56 | 6066625 Mercuryquicksilver
Mercuryquicksilver's picture

The "factor" you mention has existed repeatedly. This is why each central bank manipulates its fiat currency to be better be represented in the IMF. Its a confidence scam on its own population. Whichever government is better at scamming its own populace is better represented in the IMF. This forces the scam on other populations. Or they can create a competing IMF... Afric... CRA.

The examples you used (salt, shells etc) became units of wealth because those species could not be created out of thin air by a government and any able bodied person could directly "earn" a pound of salt by mining it or evaporating brine. Just as any able bodied person could "earn" a gram of gold by panning for it at Sutter's Mill.

This creates the baseline of wealth. Hours labor = 1 gram of gold (or 1 grain of salt or 1 unit of any physical product). But a central bank forces a double standard. For those closest to the central bank its nearly 0 hours labor = infinite fiat currency.  Those furthest from the bank the ratio is inverted.

The pyramid scheme works when the pyramid is relatively flat. 2% Y/Y scammed from the bottom pyramid to feed the top pinacle central bank works fine.... for awhile. As the pyramid grows the pyramid base shrinks and the precent skimmed goes up.  That is when the pyramid collapses and people die.

So what can the central bank do? Add to the pyramid base through population growth or migration. Or, destory and weaken competing pyramids to plunder and consolodate. A central bank can strengthen its position relative to other central banks by tying itself to gold, however this also weakens its control over its own populace. Its a trade off.

Possibly, and nobody knows when, a central bank will pull the gold trigger to be on top. This will signal other central banks to do similar as they jockey for position. Of course this may never happen and all competing central banks consolodidate into one NWO. Then we are all severely fucked.

Wed, 05/06/2015 - 11:11 | 6065807 Jungle Jim
Jungle Jim's picture

"Slowly" is the word. 

There would have been a time for such a word. _Tomorrow, and tomorrow, and tomorrow, Creeps in this petty pace from day to day To the last syllable of recorded time_, ... It is a tale Told by an idiot, full of sound and fury, Signifying nothing. -- Macbeth, Act V, Scene 5
Wed, 05/06/2015 - 10:53 | 6065711 Firepower
Firepower's picture

China will certainly BE the next BIG EVERYTHING.

There's nowhere else to go now.

Wed, 05/06/2015 - 09:57 | 6065423 cheapy
cheapy's picture

What's really newsworthy here in my view is that the Chinese appear to be slowly but methodically taking steps to boil the frog boiling paper gold price manipulators that have been for so long boiling those of us that don't trust these fiat IOU currencies.

I do believe at some point, the power will shift, to where the gold prices are determined by China, at the dollar's peril.

Wed, 05/06/2015 - 09:04 | 6065186 The_Small_Lebowski
The_Small_Lebowski's picture

Shanghai needs to watch out for those pesky (enter your favoutite hegemon nationality here) hackers methinks...

 

Wed, 05/06/2015 - 08:29 | 6065038 Prober
Prober's picture

China can have it all, makes no difference.

 

A gold reserve has meaning and impact  ONLY when all the major players

1 WANT to be on a gold reserve system and actively participate in and support it

2 WANT to limit their spending to prevent excessive outflows of their gold reserve

3 WANT to surrender the ability and freedom to manipulate their currency lower at will

 

 

NO regime

1 WANTS to limit its spending – including and especially the Chinese

2 WANTS to surrender the ability and freedom to manipulate their currency lower at will – including and especially the Chinese

THEREFORE gold is irrelevant in the modern era’s monetary system.

Wed, 05/06/2015 - 12:40 | 6066164 Consuelo
Consuelo's picture

If you are a global trading nation, what scenario would give you a better sense of confidence investing with your counter party nation:

 

- That their currency is backed by nothing and their political leadership could care less - in fact, pushes its foreign policy around in your face just to remind you how much they don't care whether you're confident or not about your risk of holding or trading in their 'reserve' currency?

- Knowing that your trading partner has a substantial/non-tradable/non-negotiable backstop for his currency that is universally recognized around the world as being a 'standard' of real value?

Wed, 05/06/2015 - 13:26 | 6066293 Prober
Prober's picture

Fiat currencies are "backed" by political stability, rule of law, economic power, GDP, military power, etc

not shiny lead dug out of the ground - that era is LOOOOOOOOONG gone and NEVER coming back.

Wed, 05/06/2015 - 11:16 | 6065828 messymerry
messymerry's picture

Prober:  Re. your conclusion:  "THEREFORE gold is irrelevant in the modern era’s monetary system."

You are correct, but correct only as long as the confidence game continues undisturbed.  If you've been watching, the FSA is getting restive, and the hunkered down 3% are getting red in the face trying to keep their heads down and their mouths shut.  This powder keg is about to blow.  It's taken a pant load longer than anticipated, but the reasons for the delay are diminishing every day.  TPTB's dogs in enforcement have acquired what they consider sufficient fire-power to protect the elites.  Now, we are in the final countdown.  I will be surprised if this insane confidence game lasts another two years...

;-D

Wed, 05/06/2015 - 11:12 | 6065817 LawsofPhysics
LawsofPhysics's picture

Gold will be looked to as one of many physical assets used to balance trade accounts, period.  Trade is the only thing that matters, period.  Gold will remain part of that equation for a long time to come.  I suspect oil, other resources,a nd technology to remain the key indicators of a countries value and ability to do what they like.  Useless paper-pushing is being recognized for what it is, useless and corrupt.

Wed, 05/06/2015 - 11:26 | 6065868 KnuckleDragger-X
KnuckleDragger-X's picture

No currency, whether physical or paper, has any value except for its recognized value in trade. The thing about gold is it a known commodity that can't be printed up in the back room as needed. China is building a huge gold stock and the question is what will they do with it. If they go with a gold based system they are going to have to quit printing whenever they feel like it and the currency will have to be exchangeable for physical, otherwise it'll just be another Ponzi scheme.....

Wed, 05/06/2015 - 13:18 | 6066271 indygo55
indygo55's picture

China worries about a pissed off population that in the past kills their leaders. China is encouraging everyone to hoarde gold and silver so that if and when (its coming) there is a global crisis those people will have real tangible money to live and prosper. Thats their safety net. Gold and silver is the final asset class that no one can counterfit. Look at the mind control being directed at the western population. Gold is bad, gold has no counterparty risk (like that makes sence), gold has no yield (neither does fiat), gold can be stolen (duh), and the Europeans are VAT taxing the shit out of it. Every effort to keep people away from it. The question is WHY?

Because it threatens the dollar and other fiats. Thats why. Now half the worlds population (BRICS, etc.) is buying it hand over fist. WHY? Because they are not subjected to the incessant US/EU mind control propaganda. Thats why. They get it and so do I.

So all you gold and silver haters can take your shill comments and shove em up your ass. You are probably hoarding gold yourself but are paid to blog otherwise. Old saying is at a picnic if a bear shows up you dont have to outrun the bear, just the last guy.

 

Wed, 05/06/2015 - 09:19 | 6065260 unplugged
unplugged's picture

he who owns the gold makes the rules

period

Wed, 05/06/2015 - 12:45 | 6066179 quasimodo
quasimodo's picture

Said the bankers since the days of the money changers in the temple courts

We need more Jesus moments of tipping the tables over.

Wed, 05/06/2015 - 09:05 | 6065198 aurum4040
aurum4040's picture

Lol, yeah I can see your more intelligent then Aristotle, Greenspans thesis paper, and the fact that every single fiat reserve currency since the beginning of time has failed. If you wish to have you and your descendants lives inflated away by globalist sociopaths, then by all means, keep your intrinsically worthless paper. There are limits to debt and spending contrary to your belief. China will play the paper game until it doesn't and you and the rest of the ignorant bag holders will pay, and pay more than you'll ever imagine. 

Wed, 05/06/2015 - 11:02 | 6065756 ThaBigPerm
ThaBigPerm's picture

Not quite.  Prober won't be holding the bag so much.  Why?  He/She/It will be one of the pissed off masses !DEMANDING! .gov kick in your door, drag you out into the streets and plunder what you have because "it's only fair".  I mean, I doubt their sort is just going to sit there steaming, pissed off but shrug "oh well, guess I was wrong".

Wed, 05/06/2015 - 15:00 | 6066662 Mercuryquicksilver
Mercuryquicksilver's picture

Well, thanks for defining Socialism.

Wed, 05/06/2015 - 14:32 | 6066538 TaxMeIAmCanadian
TaxMeIAmCanadian's picture

Fucking Right! That's exactly what will happen. And useless incompetant government will be more than happy to oblige.

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