Evidence grows on China’s thrust to control gold – and the world’s reserve currency; Will underpin the yellow metal
Join the dots. Dot one: Japanese newspapers are reporting that China renminbi (or yuan) is increasingly being used for trade settlements — in the first half of the year, China settled 2.05 trillion yuan ($334.8 billion) of its trade transactions in its own currency. That’s a 16.1% slice of all trade by China.
To by-pass the U.S. dollar, China has been concluding currency swap contracts with other countries, including Australia, Brazil, Russia, Iran and Britain (the Bank of England being the first top central bank to allow currency swaps with the yuan). Beijing has also created a new oil wholesaling structure that would bypass the petrodollar. As one commentator remarked, this was the first time in 40 years there had been a challenge to the dollar’s hegemony.
Dot 2: A South African business newspaper reputed for its coverage of the mining industry says Chinese companies are on a buying spree for gold projects.
Dot 3: In June 106.4 tonnes of gold was imported by China through Hong Kong. So, in month, China imported more gold than Canadian mines produce in a year. In the first six months, Chinese imports totalled 706 tonnes: that’s the annual combined production from the No. 2 through No. 4 gold producing countries in the world — that’s equivalent to a whole year’s mining in Australia, the U.S. and Russia. And on top of China’s own production, the largest in the world.
The Thais have joined the dots. This morning, the Bangkok daily The Nation concluded: “China is apparently preparing to adopt a pending gold standard”. It also reported that “speculation is widespread that it could be holding between 7,000 and 10,000 tonnes, surpassing the U.S. (official reserves of) 8,113 tonnes. (Beijing last reported its official reserves in 2009 when they stood at 1,054 tonnes.)
This writer has long held the view that Beijing intends eventually to have the yuan supplant the greenback as the dominant reserve currency. Look, they will argue, the yuan is backed by gold and trillions of dollars in foreign currency reserves — some US$3.4 trillion worth. By contrast, what is the U.S. dollar backed by? Trillions of official debt and money-printing presses, that’s what.
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The bottom line: China is never going to release any of that gold, and a gold-back yuan will concentrate the thoughts of Western investors in relation to the yellow metal.
On August 5 an official from the People’s Bank of China, Yao Yudong, wrote an article in the China Securities Journal arguing a new “Bretton Woods” agreement was needed — and one that created a new gold-backed reserve currency to replace what he termed as the dying dollar.
This week China Daily reported that countries in Central Asia along with Pakistan were in discussions with Beijing to have currency swap arrangements. Trade between the Central Asian republics and China hit $40 billion last year.
And it appears that China is not just interested in buying refined gold. It wants to mine it as well, with several foreign gold companies having already been acquired. There have been press reports, including in South Africa’s Business Day, that several targets have already been identified: they include Canada’s IAMgold and Ghana producer Perseus Mining. Zijin Mining, the world’s seventh largest gold miner, is reported to be considering making an offer for three of Barrick Gold’s Australian mines.
The gold story just continues to build and build.
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