Yahoo Finance How Is China Tightening Its Grip on Gold?
The Massive Sale of U.S. Treasuries and Global Gold-Buying Spree
Shanghai fix
China launched its new gold fix mechanism on April 19, 2016, in which gold (ABX) (NEM) (AU) is priced in the yuan. The Shanghai Gold Exchange listed the benchmark (or the “fix”), setting the price for 99.9% of gold at 256.9 yuan, which is $39.71 per gram.
The details of the Shanghai fix are comparable to those of the London Bullion Market Association, where the benchmark price is set twice a day. The new yuan fix is in direct competition with the London fix. While the London fix is conducted in the dollar, the pound, and the euro, the Shanghai fix is carried out only in the yuan.
China buys Barclays’ London precious metals vault
China’s state-owned ICBC Standard Bank, the world’s largest bank by assets, has agreed to buy Barclays’ London precious metals vaulting business. The deal is expected to close in July 2016. Barclays’ vault, which can hold 2,000 tons of gold and other precious metals, is one of the largest in Europe.
China and the world economy
China is the world’s largest producer, importer, and consumer of gold. But prices are set in London and quoted in dollars. In April, the People’s Bank of China said it would begin setting a benchmark for the price of gold twice a day in the yuan or the renminbi.
China could directly control the world’s gold markets once it has a significant chunk of gold demand in the yuan. The initiation of the yuan benchmark for gold is aimed at increasing the use of the yuan as a global currency. The demand from China may soon be completely directed to yuan-based gold. The higher the demand for yuan-based gold, the higher the demand for yuan currency.
The funds that might be significantly impacted by the changes in gold demand patterns include the SPDR Gold Shares (GLD), the AdvisorShares Gartman Gold/Yen ETF (GYEN), and the iShares Gold Trust (IAU).
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