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China Promotes Gold Trade – Aims for Currency Focus Shift

China Promotes Gold Trade – Aims for Currency Focus Shift

China Promotes Gold – Aims for Currency Focus Shift

The rapidly growing China Gold Market has created conditions for the development of Gold ETFs. China is the world’s biggest gold producer and consumer, with its gold output reaching 360.96 metric tons in 2011, according to the China Gold Association. China announced provisional rules and regulations for the operation of Gold ETF’s, paving the way for introducing such business into the country’s financial market & further opening its huge domestic Gold Market to the global community. China Securities Regulatory Commission or CSRC however didn’t set any specific timetable for the listing of Gold ETF or mutual funds traded on stock exchanges that track the price of gold and have most of their assets invested in gold. Authorities need to thoroughly study how to regulate Gold ETFs in order to protect investors’ interests in such new products Xinhua quoted the official as saying. The move will be part of government efforts to boost the development of both the gold market and the capital market and aimed to protect investors’ interests in such new products. China will open up to the global Gold Market, increasing its impact and attracting more foreign banks to get involved in China’s domestic market. Gold ETFs are operated in most of the world’s major financial markets, with a combined asset scale of more than $140 billion as of the end of July 2012, according to a CSRC statement. The value of Gold product transactions surged 53.45% year-on-year to 2.48 trillion Yuan ($395 billion) at the Shanghai Gold Exchange, the country’s major Gold Bourse, in 2011.

Gold Prices dip ahead of FOMC meeting:

Gold Prices edged lower on Monday as investors remained cautious ahead of an eagerly awaited US Federal Reserve meeting, which should disclose more details on the Fed’s quantitative easing policy. Comex Gold Futures for February delivery were down 0.1% to $1,655. The market is on hold ahead of the U.S. Federal Reserve’s meeting, and expects comments on further quantitative easing measures. Today’s trade should be pretty quiet, with gold players watching euro/dollar movements, looking for any indication of what is going to happen in the next few days. The Federal Open Market Committee (FOMC) policy statement on Wednesday is likely to provide the next short-term direction for gold. Accommodative policy is seen as positive for the metal, as rampant cash printing would prompt currency debasement. U.S. Non-Farm payrolls data on Friday will also be examined for more clues on the state of the world’s largest economy. Signs that the Eurozone crisis is stabilizing and the US recovery is gaining traction drove investors to the higher-yielding equity market, sending Wall Street up for the eighth straight day on Friday and out of non-yielding gold.

The Gold Strategy of China:

The Chinese currency the Yuan is still pegged to the US Dollar at a level that undervalues it substantially, provoking criticism of this exchange rate policy. The world still believes that China cannot survive and prosper without the West to fund its development, and so most analysts are focused on a hard landing for China. Nevertheless, what is really happening is that new currency swaps are forming the backdrop of Chinese metals accumulation and production. In essence, China is gradually amassing the lion’s share of global wealth in the form of hard assets.

An amusing quote posted by Tyler Durden at sums this situation up rather well:

“While the insolvent “developed world” is furiously fighting over who gets to pay the bill for 30 years of unsustainable debt accumulation and how to pretend that the modern ‘crony capitalist for some and communist for others’ system isn’t one flap of a butterfly’s wings away from full on collapse mode, China is slowly taking over the world’s real assets”.

China aims to gradually shift Global Focus away from the US Dollar:

Recent headlines from around the world have focused on how China is spearheading a shift away from the US Dollar as a reserve currency. Some articles on this topic from over the last year were entitled:

• World’s Second (China) and Third Largest (Japan) Economies to Bypass Dollar, Engage In Direct Currency Trade

• China, Russia Drop Dollar In Bilateral Trade, China And IranTo Bypass Dollar, Plan Oil Barter System

• India and Japan Sign New $15bn Currency Swap Agreement

• Iran, Russia Replace Dollar With Rial, Ruble in Trade, FarsSays

• India Joins Asian Dollar Exclusion Zone, Will Transact WithIranin Rupees

• The USD Trap Is Closing: Dollar Exclusion Zone Crosses the Pacific as Brazil Signs China Currency Swap

• Chile is Latest Country to Launch Renminbi Swaps and Settlement

• Central Bank Pledges Financial Push in Africa

• Yuan Spreading -China Creating Dollar Exclusion Zones

The movement first began in Asia, but then spread to South America, and now to Africa, reported These may seem like small steps, but the ultimate impact could well be a dramatic shift out of the US Dollar. This will make it harder and harder for the United States to continue to sustain its twin deficits and fund its massive national debt.

China Encourages Precious Metal Ownership:

Another important Chinese policy change has been to legalize Precious Metals ownership recently. Even silver ownership has been overtly encouraged by Chinese authorities. In effect, by encouraging domestic hard asset ownership, this creates a third tier or leg of support for the accumulation of precious metals. This means that China is becoming a global force in the import, production — and now the domestic ownership — of precious metals. China is already a major producer and importer of gold. The country was also a net exporter of silver, but it has now become a net importer of silver. To further support the growing Chinese precious metals market, new metals exchanges are opening.

Could China be considering a Metals Backed Currency?

While this shift in emphasis is incremental, it could easily reflect a strategic movement by China toward a new reserve currency that might be backed by gold or other precious metals. Silver has been used as an official currency in China before, dating back to the Han Dynasty that ruled from 206 BC to 220 AD. Perceptually speaking, such a trend will initially be ignored and downplayed by both sides. China would rather buy precious metals while their prices are low and unwind their massive U.S. Dollar positions without creating a market panic. Furthermore, to strengthen its funding position, the United States will continue to chant the strong Dollar mantra. Nevertheless, as the official announcement of such an intention approaches and Chinese metals buying becomes increasingly evident, the affected precious metals market(s) will have little choice but to rally substantially.

The Bank of England ready for Yuan swap line:

The Bank of England is prepared in principle to become the first G7 central bank to enter into a foreign exchange swap agreement with China, opening the door to another substantial step in moves to liberalize the Yuan currency, reported Reuters. The bank’s Executive Director for Banking Services, Chris Salmon, told a meeting of senior bankers in London that the move was aimed at underpinning a developing offshore market in Yuan trade out of London that Britain is keen to encourage. It would be the latest in a string of bilateral currency agreements that China has signed in the past three years to promote use of the Yuan in trade and investment. British officials have previously shied away from such a deal because the Renminbi (Yuan) is not freely exchangeable. But there have been signs that China is moving to open up trading of its currency and Salmon said the bank was more interested in helping yuan business to flourish. “The Bank would welcome the development of the offshore RMB market just as it would any other legitimate market innovation, and we would not want to inhibit that outcome inadvertently through gaps in our operational framework,” he told the London Money Market Association’s Executive Committee in the text of his speech provided by the bank. “To remove any residual uncertainty about our attitude: the Bank is ready in principle to agree a swap line with the PBOC (People’s Bank of China), assuming a mutually agreeable format can be identified.”

European and U.S. officials have been pressing China for years to do more to open up the Yuan to market forces, saying its artificial weakness was one of the key imbalances of the global economy. Beijing is slowly delivering, although it still keeps a tight rein on gains for the currency for fear it will weaken an economy that has been the biggest engine of global growth for a decade. “This is part of the internationalization of the RMB, this is China moving forward to internationalize its currency,” said David Bloom, head of FX strategy at HSBC. “They are setting up these lines around the world, it is the beginning of the opening up of the flower of the RMB.”

Gold Reserves in Russia climb in December:

Russia’s Gold Reserves have climbed 2.1% in December to touch 30.793 million ounces; Bloomberg cited IMF data as saying. According to the data provided on the IMF website, Gold Reserves of Kazakhstan as of December reached 3.707 million ounces, a gain of 1.7%. Reserves of Philippines dipped 1% in November from October even as that of Mexico saw a change of 0.1% in December to 4.004 million ounces.

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