For owners of physical gold who have been frustrated with the manipulation and falling prices over the past four years, the day of reckoning is slowly coming upon them. Beginning a few months ago when the London Gold Fix committee invited China to be a member of the daily price fix mechanism, the next step in having price determination move from the West over to Shanghai and Hong Kong is underway as on July 28, the London Metals Exchange (LME) ruled to allow Yuan to be used to settle gold and other commodity metal contracts.
In fact, with a Hong Kong factor purchasing the LME three years ago, it was inevitable that metal contracts would eventually be open for RMB settlement.
The London Metal Exchange (LME) on Tuesday started accepting yuan as collateral against contracts after getting permission from the Bank of England.
“The renminbi [yuan – Ed.] is on its way to becoming one of the world’s most widely-used currencies. We are pleased to be able to help our members take advantage of the opportunities arising from the renminbi’s internationalization,” Trevor Spanner, chief executive of LME Clear, said in a statement.
There are now five currencies used at the LME: US dollars, euro, British pounds, Japanese yen and offshore renminbi.
The LME was acquired by Hong Kong Exchanges & Clearing Ltd. (HKEx) for $2.2 billion in 2012, and yuan trading is another stepping stone for China. The country accounts for about 70 percent of iron ore consumption, and more than 40 percent of the demand for copper, aluminum and nickel, according to the data provided by Bloomberg. – Russia Today
The final step in China wresting price determination for gold and silver may be less than six months away, as the Shanghai Gold Exchange (SGE) has already announced back in June that they intend to begin setting their own gold price discovery by the end of the year. This will undoubtedly force a confrontation with both London and the Comex since it is likely that the Chinese announced price for gold will be much higher than the current paper spot, and set in motion a move away from the West where futures markets are now simply derivative facilities and not actual markets for the purchase and delivery of physical metals.
Despite the fact that their equity markets have crashed over the past week, China’s overall economy and planned monetary goals have not been phased a great deal since the Far Eastern banking system has plenty of assets to ride out the storm, and assuage the markets by liquidating some of their dollar based reserves. And as we head into the most dangerous part of the year in regards to the historical trend of both stock and bond markets, China’s continued march to control the world’s metal facilities and infrastructures will create a new paradigm shift, eventually leading to a gold backed system in either trade, currencies, or both.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.