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It is a thorn in the side of the Chinese that the gold price fixing is only done in euros, dollars and British pounds. That will change this year, because according to Reuters China has plans to launch a fixing of the gold price in yuan this year. As the second largest gold market in the world, China wants to be able to exert more influence on the price formation of the precious metal. China's gold price fixing will be based on a new contract for 1 kilogram of gold at the Shanghai Gold Exchange (SGE), an insider told Reuters.
China is the largest producer of gold in the world and was also the largest importer and buyer of physical gold on the global gold market in 2013. According to figures from the World Gold Council and the GFMS, India was again the largest buyer of gold in the world in 2014. Together, these two countries account for about half of the global demand for physical gold.
The Chinese Gold price Fixing could put more pressure on the fixing in London, the reference price to which producers, smelters and central banks worldwide adjust their contracts. By offering a gold price fixing in yuan, these parties get an alternative that some say is desperately needed. "We need a reference price for Chinese producers and for foreign parties that supply gold to the Chinese market. The reference price for gold in yuan can coexist with the gold price fixing in dollars", an unnamed source told Reuters.
Internationalization yuan
One barrier to wider adoption of the yuan in international trade is that the currency is not fully convertible. Initially, it will be mainly domestic parties in China who will make use of this new fixing. Nevertheless, China has already taken several steps in recent years to open up the Chinese gold market to international players. For example, there are already several Licenses for participation in the Shanghai Gold Exchange Provided to foreign banks, such as HSBC, Standard Chartered and ANZ.
The Shanghai Gold Exchange opened an international exchange in the Shanghai Free Trade Zone in September 2014, finally giving foreign banks access to gold contracts in Chinese yuan. Silver contracts are also traded through this international exchange.
Gold price fixing
China is trying to get more of a say in the fixing of the gold price in London since that fixing came under discussion. Regulators in several countries suspect banks of manipulating London's low-transparency gold fixing. Just this week, the CFTC, together with the U.S. Department of Justice, launched a large-scale investigation into the manipulation of the gold price. An investigation into these practices has also been launched in Switzerland.
As of March 20, the old London gold price fixing will be replaced by a new electronic fixing. This is done via a new online platform of the IBA, a department of the LBMA.
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China to launch gold price fixing in yuan before the end of the year
