Stock exchange news. According to the analytics of Department of Derivatives Trading, China is intended to become the international center of gold trading since 2012.
In one of the previous overviews we have promised to provide more information about the plans of China to relocate the international center of gold trading (which is currently located in the USA and England).
As we have already announced, this week Hong Kong stock exchange (which has ancient history) started trading gold contracts in yuans. However, this seems to be the mere preparation to the opening of Pan-Asian Gold Exchange, which is going to open in 2012 in Kunming, Yunnan Province in the south-west of China. The opening of the exchange is a part of Chinese five-year plan, and such plans are strictly performed in the country. Five-year plans are usually based on long-term strategies, set for decades. Therefore, we can speak about Chinese strategy to prevail at international financial markets and global economy. It is worth reminding that, according to economists’ predictions, Chinese GDP can exceed US GDP already in 2015-2017 if China maintains the average rate of economic growth in 2004-2008.
Pan-Asian means that at least PRC citizens will be able to simply use their yuan bank account in a Chinese bank or local broker to trade gold futures or buy the available precious metal. By the way, the enormous Agricultural Bank of China has 320 million clients (to compare, the entire population of EEC amounts to a little more than 501 million people), and ICBC (another large Chinese bank) has over 220 million clients; the numbers are given excluding corporate clients.
Currently LME in London and Comex in New York are the main spot markets of gold. It is evident that the banks are regulated from England and the USA accordingly. It is very doubtful that China will allow international regulators to set their rules of conduct at exchange in Kunming, which is regarded by many as the opening of China into South-East Asia. Consequently, there has to appear an Asian or Pan-Asian regulating organ/gold trading center. It may appear that in South-East Asia it will be better to trade gold (futures and spot) in yuans, but not in dollars.
It is worth reminding that international gold supply in 2010 amounted to 4155 tons, which equals to the sum of 163.3 billion dollars.
In 2011 international reserves of China have exceeded 3.2 trillion dollars, with gold amounting to only 1.6% of their value (1054.1 tons).
It is evident that since 2012 this Chinese town will attract gold traders not less, maybe even more than New York, London, or Zurich. Currency traders will keep a close eye on the players at the market of gold.
This year China has several times appealed to create unified reserve currency, which is different from dollar, and required to develop the mechanism of international control over American currency (this concerns issuing unsecured dollars). These appeals have not been supported in international financial community. However, China is known to set plans in order to perform or over-perform them. This March China officially claimed that its five-year plan includes the strategy of yuan globalization, namely, the strategy of yuan convertibility, which will turn it into international currency.
One month later Shijie Xinwenbao newspaper published an article, which is worth citing “The USA and Europe have always been suppressing the price of gold when it was rising. They deliberately weaken the role of gold as international reserve currency. They don’t want other countries to turn their reserves into gold, instead of dollar and Euro. Consequently, lowering the price of gold is profitable for the USA in order to support the role of US dollar as international reserve currency. The growing cold reserves in China can therefore set an example for other countries, and they will start to make reserves in gold. Large-scale gold reserves will additionally support the globalization of yuan”.
According to Wikileaks, this article was published in a confidential report from the US Embassy to the US State Department in Washington. This means that it is big-time politics, consequently – serious. We may witness the start of another serious conflict. The price paid concerns trillions of dollars (if to take into consideration over-the-counter trade, which is marked in gold in the pictures below).
There are many suggestions how such conflicts should be solved (even in the very recent history). However, this seems to be another issue.
