Using the gold price behaving contrary to anticipation these last 18 months and the unexpected drops in prices in Apr and June of this year, China’s effect on the gold investment market has once more come under the spotlight.
How does this emerged, giant economic climate and its people affect trends within the price of gold?
Quite a lot it turns out.
Rethinking how gold prices are arranged
Investors have thought for years that the main centres for gold cost discovery were in London and Ny, citing the opaque London Gold Market and the COMEX futures agreements.
However , it seems the growing dimension of the Shanghai Gold Exchange is usually bringing competition to this market. This much more physical of gold markets, where 240 tonnes of gold bullion was delivered in Apr compared to 3 tonnes at COMEX, is quite different to its dynamics than London and COMEX.
London plus COMEX markets have been famous for their own fractional nature, which could mean that traders lose confidence in these locations when they think they cannot be guaranteed delivery of their gold bars.
This issue continues to be written about by hedge fund supervisor Ned Naylor Leyland for some time. Various other recent reports have also shown the superior physical nature of the Shanghai in china Gold Exchange, where far increased delivery ratios exist compared to COMEX.
It’s all different in Shanghai
In contrast the transparent nature of the Shanghai exchange, with its ability to deliver massive tonnage of the yellow metal, might become an increasingly attractive destination for traders to bring their bids and offers.
For now the Western market probably do maintain dominance in the setting of gold prices, but China’s ravenous appetite for hedges against the buck based financial system is leading to new and improved gold markets inside The far east itself.
Already Western institutions possess forged relationships into Chinese exchanges allowing traders to access these marketplaces.
Only time will tell how quickly China might also usurp the West in this key area of precious metal trading.
If at this time ‘Mrs Wong’, as Max Keiser refers to the particular 300 million Chinese housewives purchasing gold, is the main constituent a part of retail demand at the Shanghai exchange, she might be joined by Mrs Watanabe, Mrs Smith and Mrs Benz if Western and Japanese retail investors seek better marketplaces for their trading and investment requirements.
How does this fit into the foreign currency wars?
The Chinese are well conscious of their position in the global currency wars. It’s why they’re therefore warm in their attitudes towards precious metals and Bitcoin.
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They are looking to get away the downsides they experience within the dollar based financial system.
It is within China’s interests to get as large a slice of the gold sport as she possibly can. This might involve a bullion backed yuan, the largest and most robust trading markets plus exchanges and perhaps also the most efficient, transparent and reliable retail purchase services and products.