Has The PBOC Taken Control of The Gold "Market"?

Has The PBOC Taken Control of The Gold "Market"?

Written by Craig Hemke, Sprott Money News

The evidence is mounting, and we invite you to consider the implications.

First, a few items of background information. Perhaps these are unrelated, perhaps they are not.

Fast forward to the summer of 2018. Two weeks ago, our fellow columnist here at Sprott Money, David Brady, wrote an insightful piece regarding a new correlation for the global gold price—the USDCNY—which is the exchange rate of US$ to Chinese yuan. Though the PBOC maintains a "peg" for this rate, the rate is allowed to fluctuate if the PBOC deems it necessary. Before we go on, I urge you to read David's column:https://www.sprottmoney.com/Blog/gold-the-chinese-...

Now consider this. Since the PBOC began to actively devalue the yuan versus the dollar four weeks ago, the price of COMEX gold has tracked the yuan nearly tick-for tick. This is clearly shown on the chart below. We've taken the USDCNY and inverted it to CNYUSD. This is shown in candlesticks. The price of the Aug18 COMEX gold is represented as a blue line.

However, upon further review, this is not an entirely new phenomenon. Below is the same chart, only extended back for a full twelve months. What do you see here? Does the global gold price appear to be influenced by physical supply and demand? Is it driven by safe haven demand or inflation risk? Or, instead, is the USDCNY exchange rate the principal driving factor of price in 2018?


And so, here's where it all gets quite interesting. What are the implications of China assuming control of the global gold price and the existing physical distribution centers in London and New York? Many have long speculated that the Chinese government and the PBOC have stockpiled thousands of metric tonnes of physical gold over the past two decades. It should come as no surprise that the world's largest holder of physical gold would want some measure of control over its price. As David pointed out in his column, "he who owns the gold sets the rules". But to what end would China be driving price?

By linking the dollar price of gold directly to the yuan, the PBOC has eliminated for now a level of foreign exchange risk to their gold portfolio. Have they done this to enable themselves to continue acquiring physical gold from the west at a "set price" ahead of further yuan devaluations? Is the PBOC planning for a trade war or a liquidation of their massive U.S. treasury position? Or, instead, are they planning for something much more significant?

A few years ago, this billboard was spotted across Asia. At the time, many wondered if there was a subliminal message being sent regarding the future of the yuan and its role in the global currency system. In light of all the recent moves by Chinese entities in London and New York—and given the now-prevalent correlation between the yuan and dollar price of gold—it's time again to consider the possible implications.

Has The PBOC Taken Control of The Gold "Market"?

Written by Craig Hemke, Sprott Money News

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Check out these other articles by our contributors:

Has The PBOC Taken Control of The Gold "Market"? - Craig Hemke (10/07/2018)

Rick Rule on Investing in Natural Resources - Maurice Jackson (09/07/2018)

Lies and Damned Lies - Craig Hemke (09/07/2018)

“I don’t give it any credibility.” - Eric Sprott on the U.S. Jobs report (Weekly Wrap-Up, July 06, 2018)


Ban KKiller Wed, 07/11/2018 - 10:24 Permalink

One day...someone will admit fiat is a lie. That same "someone" will have the solution. 

Meanwhile getting an RV to see USA...sorta speak the lingo.

DarkPurpleHaze Wed, 07/11/2018 - 10:54 Permalink

But...but...you've been stating breathlessly for months that the USDJPY trade was almost soley responsible for the tracking of the price of gold.

But now it's the USDCNY trade???

Because in just a 4 week window (that btw gives you another ledge to climb out on again) it gives the short term impression of you being correct in the here/now when in reality the USDCNY is your current excuse or opinion on why your previous analysis/prediction didn't pan out for your annual "summer breakout" spiel.

H.E.H. anyone?

When you start mentioning the USDJPY again, and you will, you'll truly reveal the hypocritical and relentless nature of your perpetual hustle. 

You'll say just about anything.


"Apparently lacking awareness, the beetle and his "analysis" inevitably flirted with the edge of credibility one too many times."

ReturnOfDaMac Wed, 07/11/2018 - 11:34 Permalink

Even if true, who cares?  There's over 200K m/t of the stuff out there.  Produces nothing, pays no interest, and can even get it up during a shooting war or a trade war.  Other than useful properties for electronics and spacecraft shielding what good is it?

Sell rocks and buy stocks.  BTFD.

SPONGE ReturnOfDaMac Wed, 07/11/2018 - 17:52 Permalink

Silver is the obvious best investment. 

Why?  Not only will it increase in value ( with respect to all the failing fiat currencies) along with gold. But, we’re also finding hundreds of new uses for it every year and we’re consuming ( yes, consuming) it much faster than we are able to extract it from the earth. 

And... most silver is mined as a byproduct of copper, zinc, and other base metals. When the world economies crash, the mining of these metals will decrease which will mean even less silver will be mined. We’ve used up most of the stockpiles of silver, mined over thousands of years. And, it’s almost gone

No brainer 

In reply to by ReturnOfDaMac

Grandad Grumps Wed, 07/11/2018 - 14:05 Permalink

It does not matter. China has agreed to let the international banking criminals in to take over management of their economy.

Satan is alive and well and living in Israel.

arrowrod Wed, 07/11/2018 - 18:15 Permalink

Really?  Fiat?  

What do you ZHers use to buy groceries?

When there are no groceries, what then?  Violence?  Gold?  Farming?

Get real.  

valerie24 Wed, 07/11/2018 - 19:32 Permalink

So, is Gold following the PBOC price down now?

Someone please tell Sprott and his minions to shut the fuck up.

and please, no one pipe up with the "it's an insurance policy" bullshit. It went down more than the DOW today.

Obviously I own too much gold and it has never been a fucking insurance policy.