Next, ICBC (Industrial and Commercial Bank of China) purchased the lease of DeutscheBank's massive London vaults in early 2016. ICBC then petitioned to join JPM, HSBC, Scotia, Barclays and UBS as a member of the London Daily Fix process: https://www.telegraph.co.uk/finance/commodities/12...
Fast forward to the summer of 2018. Two weeks ago, our fellow columnist here at Sprott Money, David Brady, wrote an insightful piece regarding a new correlation for the global gold price—the USDCNY—which is the exchange rate of US$ to Chinese yuan. Though the PBOC maintains a "peg" for this rate, the rate is allowed to fluctuate if the PBOC deems it necessary. Before we go on, I urge you to read David's column: https://www.sprottmoney.com/Blog/gold-the-chinese-...
Now consider this. Since the PBOC began to actively devalue the yuan versus the dollar four weeks ago, the price of COMEX gold has tracked the yuan nearly tick-for tick. This is clearly shown on the chart below. We've taken the USDCNY and inverted it to CNYUSD. This is shown in candlesticks. The price of the Aug18 COMEX gold is represented as a blue line.
However, upon further review, this is not an entirely new phenomenon. Below is the same chart, only extended back for a full twelve months. What do you see here? Does the global gold price appear to be influenced by physical supply and demand? Is it driven by safe haven demand or inflation risk? Or, instead, is the USDCNY exchange rate the principal driving factor of price in 2018?
And so, here's where it all gets quite interesting. What are the implications of China assuming control of the global gold price and the existing physical distribution centers in London and New York? Many have long speculated that the Chinese government and the PBOC have stockpiled thousands of metric tonnes of physical gold over the past two decades. It should come as no surprise that the world's largest holder of physical gold would want some measure of control over its price. As David pointed out in his column, "he who owns the gold sets the rules". But to what end would China be driving price?
By linking the dollar price of gold directly to the yuan, the PBOC has eliminated for now a level of foreign exchange risk to their gold portfolio. Have they done this to enable themselves to continue acquiring physical gold from the west at a "set price" ahead of further yuan devaluations? Is the PBOC planning for a trade war or a liquidation of their massive U.S. treasury position? Or, instead, are they planning for something much more significant?
A few years ago, this billboard was spotted across Asia. At the time, many wondered if there was a subliminal message being sent regarding the future of the yuan and its role in the global currency system. In light of all the recent moves by Chinese entities in London and New York—and given the now-prevalent correlation between the yuan and dollar price of gold—it's time again to consider the possible implications.
Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.
The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.You may copy, link to or quote from the above for your use only, provided that proper attribution to the author and source is given and you do not modify the content. Click Here to read our Article Syndication Policy.
The content on this site is protected
by U.S. and international copyright laws and is the property of GoldSeek.com
and/or the providers of the content under license. By "content" we mean any
information, mode of expression, or other materials and services found on GoldSeek.com.
This includes editorials, news, our writings, graphics, and any and all other
features found on the site. Please contact
us for any further information.
Live GoldSeek Visitor Map | Disclaimer
The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy
or completeness of the information (including news, editorials, prices, statistics,
analyses and the like) provided through its service. Any copying, reproduction
and/or redistribution of any of the documents, data, content or materials contained
on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC,
is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be
liable to any person for any decision made or action taken in reliance upon
the information provided herein.