Will China Clean Up the Criminal Gold Futures Markets?

China gold

In this article, I will explore how gold will figure into the future global currency system after the global financial system implodes at some point within the next couple of years, perhaps sooner than later, especially since it just likely missed a complete meltdown this past March, which I’ve already spoken about here, though this event was not covered by a single mass media journalist.  I always look to the gold industry, data and commentary from the two nations that I believe are one and two in national gold reserves, China and Russia in forecasting the role of gold in the global monetary system. This process not only requires gathering information by talking to contacts I have on the ground in various cities in various regions in China and in Moscow, Russia, visiting  national gold industry websites online, reading articles and commentary of top State finance officers, but also involves dismissing all State reported data for gold reserves that are never transparent and analyzing incidences of Western banking spoofing of gold prices.

 

Western banking spoofing of gold prices is a favorite tactic of bullion banks to suppress gold prices and such fraud has to be considered in predicting gold price’s continued trajectory higher as China continues to silently execute its plan to return gold as the basis for their economic future. Recently, top Chinese State officials recently commented that their nation has to prepare for complete revocation of access to the international SWIFT system as a consequence of their ongoing economic war with the West (which also, in my opinion, includes deliberate disinformation about the severity of the coronavirus to the West to coax ignorant mayors and governors to lockdown their regions and create unnecessary economic misery and suffering, as I discuss in the soon to be released skwealthacademy podcast #114). 

 

To begin, to prove that Chinese State officials, as is the case for State officials of nearly every nation in the world, are playing a smoke and mirrors game in the release of their financial statements, I have been studying China’s complete restructuring of their national financial systems for the past decade, and for a State official to claim that China must prepare for complete revocation of access to the SWIFT system in mid-2020 is a complete joke, as they have spent the majority part of the past decade preparing for this event.  This recent public statement is merely a misdirection strategy to portray weakness in an area that has most likely already been fortified. Consequently, as of 14 July 2020, China is probably are far more advanced in their ability to withstand complete revocation of access to SWIFT, and perhaps would not even suffer a single major glitch in their national and international financial transaction traffic if their access to SWIFT was revoked by the US today. Though SWIFT is located in Belgium, the US and UK, not Belgium, controls it.

 

When I scan national industry websites in China, it is further apparent that China is planning for gold to play a major role in its financial system moving forward. There are many jobs being advertised in Beijing and other financial hubs in China, like gold industry analysts, that simply do not exist as a core component of any big bank in London or New York, like JP Morgan, Goldman Sachs or Barclays.  While Western banks are shrinking or completely divesting of their gold trading desks, China is doing the opposite and rapidly expanding this department as an important arm of many of their financial institutions.  For example, Scotiabank attempted to completely divest of its Precious Metals division, but failing to find adequate buyers, they are simply unwinding this division by 2021, and as of the end of April, only had fifteen staff still remaining in this division, and likely fifteen very unmotivated staff as they are all dead men walking.  Furthermore, the comical narrative being forwarded in that aforementioned linked article is that with less big banks participating in the daily gold “fix” twice a day, that the price discovery will become less “accurate.” Price discovery that comes from a “fix” based upon no determinants of the physical market has always been highly inaccurate, and price discovery in gold and silver would likely only have a semblance of accuracy if the loco London and New York precious metals derivatives markets completely shut down and price discovery only happened in markets primarily driven by physical metals settlement, such as the Shanghai Gold Exchange (SGE).

 

The Shanghai-Macao Gold Road Project

At the start of this year, China launched the "Shanghai-Macao Gold Road Project". As part of this project, the Bank of China helped foreign investors set up offshore accounts to invest in gold and also announced the launch of an initiative to address Portuguese speaking natives, as this was a transparent nod to bring Portuguese speaking Brazil of the geopolitical BRICS coalition into the fold of China’s international gold plan. The CCP plans to use Macao as a base to promote an internationally accepted Chinese gold pricing system and Chinese gold production capacity output in what they describe as Portguese Speaking Countries (PSC), but it’s not too difficult to read between the lines to understand that China’s inclusion of PSC in their plan refers to Brazil and not to Portugal, Mozambique, Equatorial Guinea,  or even to the minority Portuguese speaking population that lives in Macau.  As further proof of China’s huge plans for Macao and Hong Kong as integral to their future gold plan, China built the ambitious Hong Kong–Zhuhai–Macau Bridge (HZMB), a 55-kilometer bridge–tunnel system that consists of a series of three suspension bridges, including one that is the longest sea crossing in the world, an underwater tunnel, and the construction of four artificial islands to support the transportation infrastructure. The HZMB connects Hong Kong, Macau, and Zhuhai—three major cities vital to the Chinese economy. In fact, China’s more comprehensive plan is to link Hong Kong, Macau, and nine cities in southern Guangdong province into an integrated technology, business and finance hub by 2030. Once one understands the vital role Hong Kong plays in China’s economic future, it becomes much easier to take Western biased blinders off about the narrative sold about the Hong Kong protests by the Western media.

 

As I stated numerous times before, if the West seeds chaos in Hong Kong, they can disrupt the central role that CCP has planned for Hong Kong in its one belt one road (OBOR) initiative, so only the most ignorant or most naïve of naïve would fail to understand this angle and believe that the chaos being seeded in Hong Kong is purely about democracy when they are nations with far more tyranny in Africa, like Libya for example, where an open slave trade is ongoing, that Western nations are deafeningly silent about. Furthermore, though the Chinese government can be incredibly oppressive, again only the most naïve of the naïve would believe that the Chinese government was absurdly incompetent in its surveillance and oppression in allowing Wuhan lab employees to defect and a Chinese virologist to escape to America, but yet brutally efficient in its oppression of Hong Kong citizens during the protests.  If narratives have to wildly change to fit the narrative into a specific bias, then the narrative is never true.

 

Other developments of which Westerners may not be aware, only because gold industry developments in Asia rarely receive the type of coverage in the West that it receives in the East, include the steady growth in daily gold trading volume on the Shanghai Futures Exchange (SHFE) for the past eight years. Back on 5 July 2013, the Chinese State granted access to night trading hours from 9PM to 2:30AM Shanghai time on the SHFE, specifically to address the concern of traders not possessing the ability to manage risk during trading hours in London and New York. That access to trading gold futures during day time hours in the West in Shanghai led to a steady growth in daily gold trading volume. Shortly after this development, in 2013, it was reported that daily trading volume ramped up significantly higher in gold to 595,642 lots, with a lot representing 1kg of gold and in silver to 2.23 million lots of silver, with a lot representing 15kg. However, back then contracts were double counted versus being single counted now, meaning that the lots had to be cut in half to determine the true trading volume.

 

 

Allow me to explain. If 5,000 lots of gold contracts traded hands, this means that a seller sold 5,000 lots to a buyer, but the lots were double counted back then meaning that 5,000 lots were counted on the selling side and 5,000 lots were counted on the buying side for a total of 10,000 lots, though only 5,000 lots exchanged hands in the transaction. Thus, to determine trading volume in 2013 and up to the end of 2019, it was necessary to cut the number of reported traded lots in half to determine the true trading volume. If we did this for the traded lots reported just weeks after extended night trading hours were introduced on the SHFE, the daily trading volume for gold rose to 9.575M AuOzs and the daily trading volume for silver represented a little over 500M AgOzs (up from the pre night trading hour daily trading volume of about 89,500 AgOzs). The fact that the daily silver trading volume on the SHFE immediately rose six times after the introduction of night trading hours made perfect logical sense given the massive volatility in spot silver prices that often are artificially engineered in London and New York markets. Thus, traders in Shanghai ramped up their trades during the hours in which silver futures prices were being manipulated the most which led to an explosion in daily trading volume.

 

Since then, both gold and silver trading volume have continued to expand in Shanghai, though overall gold trading volume in Shanghai still pales in comparison to the combined trading volume in New York and London. However, the majority of daily silver trading volume on the SHFE is settled physically as opposed to majority paper settlement of silver in NY and London, so the Shanghai market is by far and away, already the top physically settled silver market in the world. Though the Shanghai gold market is also the largest physically settled gold market in the world, a large portion of daily volume still consists of swaps, forwards and other cash settled derivative contracts. Of course, the cumulative physical gold delivery that settles contracts in Shanghai, despite the significantly higher gold trading volume in Western markets, still far outpaces that in London and in New York, due to the majority paper settled gold trading platform that exists in the West.

 

According to the World Gold Council, in June 2020, about $34.9B of gold traded daily on the COMEX and an additional estimated $103.6B in London for a total daily gold volume of $138.5B, while only about $13.73B of gold, or roughly 10% of the volume of New York traded daily in Shanghai (combined figures for SGE and the SHFE) over the same time period. However, despite the fraction of gold trading volume in Shanghai, comparatively speaking to the combined trading volume in NY and London, please listen to my skwealthacademy podcast #114 when I release it later next week to discover why gold price discovery is likely to still shift to Shanghai and away from NY and London, and possibly more rapidly than anyone would fathom due to developing circumstances. Just subscribe here to be informed of its release.

 

Coincidence?

The SHFE released the below press release in early July, referencing the fact that they have caught certain players in their futures markets spoofing the market and that appropriate action will be taken to stop this action. Spoofing has been one of the favored tactics employed by Western bankers in the London and New York gold and silver futures and derivatives markets to cause waterfall declines in these markets for over a decade now. Thus, it is just a coincidence that the SHFE released this press release and that gold and silver prices took off shortly after? Perhaps, or perhaps not.

 

The Shanghai Futures Exchange (hereinafter referred to as “The Exchange”) has been on continuous efforts in investigating and penalizing violations of relevant rules and regulations, so as to strengthen the risk management of the futures market, regulate the futures trading activities and protect the legitimate rights and interests of futures market participants. The enforcement against such violations in June 2020 are listed as follows:


In the aspect of administration of abnormal trading behaviors, the Exchange has dealt with a total of 77 cases, among which 30 cases were self-trades, 47 cases were frequent order cancellations. The Exchange has separately notified the relevant clients by phone through members and placed 14 clients and 1 group of accounts with actual control relationship on the Exchange’s watch list, notified 18 abnormal trading behaviors to all the members. The Exchange has suspended 3 clients from opening new positions on the relevant futures contracts and notified to the market.


In the aspect of identification and cooperative investigation of accounts with actual control relationship, The Exchange has identified 101 groups of 234 clients that exist the actual control relationship and urged 5 groups of 53 clients to cooperate with the investigation of the actual control relationship. In the aspect of inspecting cases violating trading rules, the Exchange has dealt with 7 cases suspected of violation trading rules, which 3 cases were suspected of accommodation trade, 3 cases were price fluctuation caused by program errors or market price orders, 1 case was wrong order. The Exchange has filed and investigated one of the cases suspected of violating trading rules. The Exchange reminds the investors to be in compliance with its rules in the trading activities and cooperate with the reporting of actual control relationship accounts.

 

 

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Other recent skwealthacademy content:

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