Sunday, April 17, 2016

China's gold accumulation has always been about strengthening the Yuan for global use

As many precious metal holders and investors watch with great interest for this Tuesday's expected announcement of a new Yuan denominated gold price, the rest of the world remains ignorant to the long-term reasons why China has been accumulating gold, and even pushing their people to buy the precious metal.  It is because as the Yuan becomes ready for greater international use in the very near future, gold has been the key for not only its foundation, but also the means to rocket the currency to the top in global use and trade.

More of China’s gold strategy was revealed by the recent launch of the Shanghai International Gold Exchange (SGEI) that offers gold trading in renminbi for clients worldwide, in an attempt by China to strengthen the internationalisation of the renminbi. In itself the SGEI clearly underlines China’s gold ambitions16, but the punch line was added with the launch of the Silk Road Gold Fund in 201517. Led by the SGE(I), the $16 billion fund will boost the gold industry along the Silk Road and in turn “will facilitate gold purchases for the central banks of member states to increase their holdings of the precious metal”, according to the Chinese state press agency Xinhua18. Not only is China trying to persuade all mining and consumption of gold along the Silk Road economic project to be settled through the SGEI in renminbi, additionally the Chinese promote gold as an essential component of central banks’ international reserves going forward. 
We must conclude that the State Council views gold as part of the coming international monetary system. Why else does it quickly develop the domestic gold market to be embedded in financial markets, surreptitiously accumulate vast gold reserves and establish a framework to boost gold business on the Eurasian continent around the SGEI? In my view, China contributes significant value to its gold strategy in the shadow of the apparent failure of the current fiat monetary system. And if true, China’s central bank having nearly 4,000 tonnes of gold is well on its way to introduce the next phase. - All China Review


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