Commodity Trade Mantra

China Plans To Launch Renminbi Gold Fix By End of 2015

China Plans To Launch Renminbi Gold Fix By End of 2015

China Plans To Launch Renminbi Gold Fix By End of 2015

Today’s Pfennig for your thoughts…

Good day, and a Happy Friday to one and all!

There’s been no agreement to the show going on in the Eurozone with Greece negotiations.

A week or so ago, I told you about the 10th Man newsletter that’s written by Jared Dillian, and published by Mauldin Economics (www.mauldineconomics.com/the-10th-man). He has written an excellent short piece on Greece this week. I suggest you go there and read it today or when you have time.

He sums it all up pretty well. I also had someone get really upset with me for putting the blame for the Greek debt problem on the Greeks. I said, “Whoa. just because institutions like G.S. showed Greece how to build their debt and hide it at the same time, doesn’t mean Greece had to go ahead and do what the institutions said.”

So, no “deal” there between the creditors and Greece, and the euro remains around 1.12.

In fact, except for the Antipodean currencies, the dollar is pretty much unchanged this morning. Well, I take that back. The Antipodean currencies and the Russian ruble are the currencies with red marks this morning.

In the South Pacific, the New Zealand dollar/kiwi saw its gains from yesterday wiped out in a NY Minute, when the Reserve Bank of New Zealand (RBNZ) just had to play the part of the devil, and tell the markets that kiwi is “unjustifiably high.”

That sprung the trap door under kiwi, and that spilled over to sympathy trading with the Aussie dollar (A$), who has also seen its gains from yesterday wiped out..

I guess the RBNZ didn’t want traders to take the gains from yesterday, and add to them once they saw the surprise from New Zealand last night. New Zealand printed a Trade Surplus in May! Now that’s something to be proud of, especially for the islands nation that really has to import so many things.

I guess the lumber, diary and wool exports were either really good, or domestic demand was down. But a trade surplus is a good thing for N.Z. folks. And once the smoke clears from this latest attempt to weaken kiwi by the RBNZ, we could see things settle down again.

Staying the region. The Chinese renminbi/yuan was allowed to appreciate last night, after the two previous nights spent on the weakening side of the ledger.

I saw on the Bloomberg this morning that in a recent poll of economists 11 of the 16 economists polled, thought that the Chinese renminbi would be added to the IMF’s basket of currencies that make up their SDR’s (Special Drawing Rights) this year.

You know, in 2010, the IMF turned down the renminbi for this inclusion on the grounds that the renminbi was not “freely usable”.

Well, I would think that those grounds have been erased, given that China has really opened their economy, and the renminbi is now the second-most used currency in trade finance, and the 5th most-popular for global payments according to SWIFT (we talked about that yesterday).

And as long as I’m talking about China, I might as well skip to this thought. Hopefully the knight in shining armor on top of a white steed, will ride in to save gold.

No wait!

I think the fact that China plans to launch a renminbi-denominated gold fix by the end of this year, will fill in nicely for the bold Knight.

You, dear reader, will probably recall me telling you that this was the plan in China some time ago, but yesterday, I saw on YAHOO Finance that they thought it was a new story, and ran with it as such.

But it’s a good reminder to us all, in case we had forgotten this announcement. For those  of you new to class, or missed class, the skinny on this is simply that China plans to launch a renminbi-denominated gold fix by the end of 2015 via the Shanghai Gold Exchange (SGE), which will give the world’s biggest producer and consumer more influence over pricing.

Here are some additional thoughts from YAHOO Finance:

China feels it is entitled to be a price-setter for bullion and is asserting itself at a time when the global benchmark, the century-old London fix, is under scrutiny for alleged price-manipulation.

If the renminbi / yuan gold fix takes off, China could compel local buyers and foreign suppliers to pay the domestic renminbi / yuan price, making the London gold fix less relevant in the world’s biggest bullion market.

I had to do a double take on a headline on the Bloomberg this morning. The title of the article read: Dollar Set For Weekly Gain on Confidence Over Fed Rate Increase. Hmmm. “Confidence?” Well, I guess there’ll be “confidence” when the U. of Michigan Confidence surveys print today for the first two weeks of June. But beyond that, who knows where the confidence could be coming from?

Apparently somewhere, there’s confidence that the Fed is ready to hike rates, but that’s not coming from my office! Or home! Or even down at my favorite watering hole, the FBG! In these places we talk about debt, pension shortfalls, real unemployment, unfunded liabilities, and scandals.

The two Nordic currencies, not part of the euro, Norwegian krone, and Swedish krona, are still finding terra firma very difficult to find, even with the euro relatively stable around 1.12.

In Sweden, the Riksbank will meet next week (7/2) and even though retail sales were softer than expected and the Trade Surplus ½ of the expectations, I expect the Riksbank to remain unchanged with rates and QE. Their focus is strictly on inflation, and there has been a slight uptick of inflation in Sweden lately.

The Norwegian krone continues to get hammered due to the rate cut two weeks ago by the Norges Bank. And rightly so, I would say!  What else should you expect when a country debases their currency?   The same thing holds for the N.Z. kiwi. The RBNZ cut rates, and since then it’s been tough sledding for kiwi.

There’s really no excuse for these central banks, or any central bank to cut rates so low. There’s a point where cutting them doesn’t amount to a hill of beans with regards to helping the economy, and at that point, what’s the use?

Look at Japan as the poster child for ZIRP not helping an economy. The U.S., Eurozone, and Britain has also tried it. And none of it has helped.  So, Chuck’s memo to central banks: just say no to rate cuts!

Remember on Wednesday this week, when the price of oil moved higher to the $61 handle, and I told you that, well, let’s just go back to Wednesday for what I said, eh?

…The thing we have to remember here is that the oil’s price has been stuck in this range of $58 to $62 for some time now, and when it falls back, so too do the petrol currencies… I wouldn’t get too lathered up on this, not until we see a break above $62.

Graham Nash sang a song years ago. I am a simple man, so I sing a simple song.   I’m reminded of that song every time I nail something like the oil price move this week.   Oh, I guess I should tell you that oil’s price this morning has a $59 handle.

Gold is flat this morning, but looks like it could move higher on the day as it moves up a buck or two and then drops back, only to follow up with a move up by a buck or two again. Champing at the bit to move higher I would say.

But then that can all be knocked for a loop once the, oh never mind, I get so tired of saying the same thing when it comes to gold’s chances for a rally on the day.

I was reading an article on www.bullionstar.com last night that was submitted by Koos Jansen, regarding his reasons why he believes the withdrawals from the Shanghai Gold Exchange (SGE) represent gold that China is accumulating.

I did like something he said about the reasons why China would also be buying gold on the international markets.

Let’s let Koos Jansen tell you:

Gold sold on the SGE is priced in renminbi and the PBOC with large multi-currency reserves may rather use U.S. dollars than purchasing domestically priced gold. The international market would have a lot more liquidity too.

I’ve told you for a few years that I thought China was using their treasure chest of U.S. dollars to buy gold. So, this news comes as no surprise to me, or should you. But it does confirm what I’ve said.

Well, the U.S. data cupboard yesterday, and personal income was bang on expectations at 0.5%, but personal spending was much stronger than expected at 0.9%, both in May. The personal spending really got the rate hike campers all lathered up, as they pointed to how the U.S. consumer “was back”

As far as I’m concerned the only thing it showed me was that we as a country spent more than we made, which is a recipe for disaster, as we found out a few years ago.

The Fed’s preferred measure of consumer inflation, the PCE, was bang on with expectations at 0.3%, but up from the 0% change the previous month.  The PCE Annual rate of inflation was 1.2%, Still a very far cry from the Fed’s 2% target for inflation.

So the rate hike campers pushed this data aside and focused on the Personal Spending data.

Funny how that happens, eh? Push the stuff that doesn’t sell your story aside, and focus on what does sell your story.

With gold stuck in a rut around $1,200 I thought it would be a good idea to update you with some gold accumulation numbers from countries that we don’t normally talk about regarding gold accumulation; Kazakhstan and Malaysia.

The idea here is that it’s not just China, Russia and India accumulating gold.  You can read the whole article here:  http://www.mineweb.com/news/gold/kazakhstans-gold-hoard-climbs-for-32nd-month/

Kazakhstan increased gold reserves for a 32nd month in May as Russia also added to holdings, according to the International Monetary Fund. Malaysia expanded assets for the third time this year.

Kazakhstan bought 2.6 metric tons last month to take its total to 203.4 metric tons, data on the IMF’s website show. Russia, the world’s fifth-biggest holder, purchased about 4.3 tons, while Malaysia raised holdings by 0.3 ton.

Gold prices rose 0.5 percent in May as investors studied U.S. economic data for clues on when the Federal Reserve will raise interest rates and as the Greek debt crisis continued. Central banks expanded holdings over the last few years, a reversal from two decades of selling since the late 1980s. Russia more than tripled its hoard since 2005 and Kazakhstan bought gold every month since October 2012.

The Bank of Russia said last week that it raised its reserves in May. It now holds 1,250.9 tons, and Malaysia’s holdings total 37.3 tons, according to the IMF data. The Czech Republic reduced reserves by 0.2 ton last month to 10.2 tons, the data show.

Chuck again. I’ve always told you to follow the money, right?

Well, that would mean we would be following the central banks of the East and Middle East in accumulating gold at these current prices.

Makes sense to me, and second, I think we should be asking the question of, “What do the central banks know that we don’t know?”

I think we “know,” we just don’t want to believe it to be true.

That’s it for today.

 

Courtesy: Chuck Butler for The Daily Reckoning

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