China is the world’s largest producer, consumer and importer of gold. But it was not enough. The country is trying to become dominant in lending and trade gold. China this is for a number of reasons.
A year ago, “a Great Age” wrote about China’s ambitions: to control the price of physical gold. According to Reuters, he approached the step to the establishment of the price of gold on the basis of the yuan.
“I think the Chinese aim to create a real market that reflects the supply and demand for physical gold,” ― said last year Simon Mikhailovich, General Manager at Tocqueville Bullion Reserve.
“They’re working on infrastructure that will move from West to East pricing mechanisms for gold, silver and other precious goods,” ― says Willem Middelkoop, head of the Commodity Discovery Fund.
If China manages to launch a new pricing system, this will be an important step towards its dominance in the global gold market. He already has a futures exchange with the new standard for 1kg gold bars of 999 fineness. It competes with the new York Comex futures exchange, where only 1 out of 200 auction ends with the actual delivery, says Middelkoop.
The fixed price for gold will be a counterweight to the London Association of precious metals market (LBMA), where prices twice a day secretly installs several banks, and constantly rumors of price manipulation.
What does China gain from this? The official gold reserves of China by the end of 2015 amounted to 1762 tons. But experts believe that China controls a lot more gold.
“We know that China gets 1600-1700 tons of gold every year. They’ve been doing it for seven years, so for the last 7 years excess of gold amounted to 10 000 tonnes, can be 13 000 tonnes. We don’t know which part is intended for the government, and some for private individuals,” says James Rickards, author of “a New case of gold.”
According to him, China has completed most of the program for the purchase of gold. Now its reserves comparable to the reserves of the U.S. and the Eurozone. If China controls the price of physical commodities and futures contracts, it will be able to control the real price of gold, underestimate LBMA and COMEX. Similar opinion is shared not only James Rickards and Willem Middelkoop, but also Deutsche Bank.
China can reveal your real gold reserves. This will play into his hands in negotiations with the West in case of a possible financial crisis and reform of the financial system. Using gold and other levers, such as the Asian infrastructure investment Bank (AIIB), China has influenced US and has made the inclusion of the yuan in the SDR basket (special drawing rights).
“That’s why some people say the Chinese make the yuan the world’s reserve currency, backed by gold, and will displace the dollar. It’s possible, but I don’t think they do that. They hedge positions, because they have dollar-denominated assets in the amount of approximately 2 trillion,” says Rickards.
In his opinion, for a new global currency requires global solution and this solution ― not the yuan. But even if China is not trying to make the yuan the world currency, futures trading in yuan would reduce the demand for dollars and increase the demand for the yuan. How much? It depends on the price of gold.
