China’s Big Four Join Yuan Gold Fix
Posted | 14/04/2016 / Views | 220
In a big step towards the ability to set pricing for the metal, the Shanghai Gold Exchange has confirmed that China Construction Bank, Industrial and Commercial Bank of China, Bank of China and Agricultural Bank of China which comprise the list of China’s big four state-owned banks will be the latest of 18 members to join the Yuan denominated gold benchmark set for commencement next week.
Like the London spot benchmark, the new benchmark will be set twice a day. Priced in dollars per troy ounce, the London spot is derived from electronic auctions; something introduced in 2012 to replace the inter-bank teleconference mechanism after the Libor scandal. China’s benchmark will be derived from a period of trade time, will be priced in yuan per gram and will be based on a 1kg contract. The 18 members of the benchmark are reported as including gold miners, the world’s biggest jewellery retailer, Chow Tai Fook and Swiss trading house MKS.
China has experienced difficulty regarding the involvement of international banks in the use of the new benchmark, citing concerns around regulatory scrutiny to name just one issue. This has seen China use its muscle as the largest gold market participant to make a persuasive case for membership. One tool at China’s disposal in this regard was reported by the media in January and comprises of the ability to inhibit foreign bank operations in the local Chinese market.
Currently, two foreign banks have signed on as members of the new benchmark, namely ANZ and Standard Chartered. Interestingly, both banks have gold import licences in China."
So there it is. London and Wall Street have, not surprisingly, had the handbrake on, and have withheld participation, leading to the Chinese ultimatum "IN OR OUT! If they stay out, they can play with their paper futures as much as they like, but arbitrage will take care of any tricks they try.
Note that ANZ has been proactive and IMO will benefit greatly in future.
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