Tuesday marked the 37th record close for gold futures this year.
In its most recent attempt to increase its presence in the global market for the precious metal, China is apparently planning to invite some nations to purchase actual gold and deposit it within its borders.
Adrian Ash, director of research at BullionVault, stated that although China “lacks any kind of bullion banking market, and trading through the Shanghai Gold Exchange remains very much domestic,” the country is the world’s largest miner, net importer, central bank buyer, and major consumer of gold. He pointed out that China’s central bank is “keen to change all this.”
Bloomberg reported on Tuesday, citing people familiar with the situation, that the People’s Bank of China (PBC) intends to become a custodian of foreign sovereign gold reserves by using the Shanghai Gold Exchange to entice central banks in “friendly” nations to purchase bullion and store it within the country’s borders. MarketWatch emailed the Shanghai gold exchange Tuesday after hours to obtain comment on the report.
In his statement on Tuesday, Ash stated that “building stockpiles of gold ready for leasing and loans” would be a crucial first step in creating a bullion banking market. But easing the limits on exporting bullion from China would be another crucial step, “so as to keep domestic prices more closely in line with global [price] quotes.”
According to Adrian Ash of BullionVault, trading gold on the Shanghai Gold Exchange is still primarily a domestic activity.
The Chinese yuan (USDCNY) must become “freely convertible – something there’s no sign of yet,” he continued, as the last step.
Additionally, foreign investors would first need to overcome their concerns about keeping their gold outside of their home countries, especially in the case of communist China.
When deciding where to store some of their bullion, governments and foreign investors will “need to trust the rule of law and respect for property rights in the way that London and New York have always enjoyed,” Ash stated. “That looks like a big ask starting from where the communist state stands today.”
According to the World Gold Council, the three most significant gold-trading hubs in the world are the Shanghai Gold Exchange, the U.S. futures market, and the London bullion market. The largest over-the-counter market in the world is run by London, where traders deal directly with one another instead of going via an exchange.
According to the World Gold Council, the three most significant gold-trading hubs in the world are the Shanghai Gold Exchange, the U.S. futures market, and London’s bullion market.
However, according to Felipe Barragán, an expert research analyst at Pepperstone, the report that China is “seeking to act as custodian of foreign sovereign gold reserves underscores Beijing’s ambition to expand its influence in the bullion market and reduce reliance on Western financial hubs.” “Combined with the PBoC’s steady purchases, the initiative highlights the importance of central-bank demand as a long-term pillar of support.”
Beijing wants to increase its influence in the bullion market and lessen its need on Western financial centers, according to the report that states that China is “seeking to act as custodian of foreign sovereign gold reserves.” Pepperstone and Felipe Barragán
According to Ash, the Bloomberg report was released just months after the PBC requested that the Shanghai Gold Exchange, as part of a new “action plan” for promoting cross-border financial services in Shanghai, broaden and investigate the internationalization of its gold contracts.
The Shanghai Gold Exchange offered certain gold contracts for delivery in Hong Kong and opened its first offshore gold delivery vault there in June.
In July, the World Gold Council reported that the PBC had made its ninth straight monthly gold purchase. That month, the central bank purchased two metric tons of gold, bringing its total declared gold reserves to 2,300 metric tons. The World Gold Council reports that China has increased its gold reserves by 21 metric tons so far this year.
The December contract (GCZ25) (GC00) closed at $3,815.70 an ounce on Comex on Tuesday, marking the 37th record-high close of the year for gold futures prices.
