China Plans To Take the Lead In Global Gold Market

Status as one of the world’s biggest bullion importers, participation in the gold fix at the London exchange and a plan to establish a jewelry gold investment center in Shanghai has turned China into one of the leading players in the global gold market in 2016.

Gold entered the New Year in a downward trend. In 2016, prices of the yellow metal have continued to drop, for the fourth year in a row. The last time such a trend was registered  was between 1988 and 1992. A drop in global gold prices was advantageous for China, the worlds’ biggest importer of gold bars, gold investment coins and refined gold. At the same time, by the end of 2016 gold prices were on the rise, with an ounce adding nearly six percent in dollar equivalence. In mid-2016, bullion prices jumped by 25 percent and higher. Then, gold dropped, but the dollar-denominated yield of gold is still higher than that of dollar deposits in banks. Thus, China found itself in a two-dimensional situation. On the one hand, Chinese gold buyers can now easily enter the global market due to the decrease in prices. On the other hand, gold holders, including the People’s Bank of China and private customers, can take advantage of the slow recovery in the prices.

In a bit to curb capitals outflow from China, the government restricted gold imports. Banks licensed to perform operations with the precious metal have faced problems with importing it. Thus, the world’s biggest consumer of gold can influence global prices, said Andrei Vyazovsky, Vice President of Russian gold investment company Zoloto MD.

“Those restrictions alongside a currency reform in India resulted in a drop in global gold prices. They dropped below $1,200 per an ounce and settled at $1,130. At the same time, what Beijing is doing is not an official financial policy. The measure is applied on a case by case basis. It seems that Chinese authorities want to analyze the impact of those quotas on capital outflows,” Vyazovsky told Sputnik Chinese. However, the expert suggested that Beijing is likely to ease or lift the restrictions in 2017.

“The Chinese government eyes a global gold trading center in the country. Moreover, the Shanghai Gold Exchange is ramping up. So, any administrative restrictions would have a negative impact on those plans,” he pointed out.

In 2016, for the first time, China introduced its own gold fixing at the Shanghai Gold Exchange, making it one of the leading global trading platforms. In May, China’s ICBC Standard Bank bought a 2,000-ton gold vault from Barclays, taking on the London Metal Exchange. The deal delivered a “vote of confidence in the depth and strength of London, the world’s international gold market,” Ruth Crowell, the head of the London Bullion Market Association (LBMA), told The Financial Times.

Furthermore, it was discovered that Barclays and at least another 10 banks, including JPMorgan Chase and Deutsche Bank, were involved manipulations of gold and silver prices. After a series of scandals, the list of banks comprising the LBMA was expanded, adding three Chinese financial organizations, including the ICBC. As a result, China’s reputation in the global bullion market has significantly increased, according to Vyazovsky.

“In recent years, China has been increasing imports of the yellow metal. Beijing also plans to establish an international gold trading center in Shanghai. This is why establishing the Shanghai Gold Fix was logical. Moreover, it is aimed to increase transparency in the market. In the long-run, China is likely to begin exporting gold,” the expert said.

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