China has launched a yuan denominated gold price fix in an attempt to become a price maker for the metal.
Many investors, believe the gold prices decided in the west are not reflective of a free market price discovery mechanism.
This may be the most bullish news for gold this year, but there is a possibility that price manipulation will go from bad to worse.
China is taking control on the global gold trade.
China is moving to become a bigger player in the global gold market. This sounds odd, considering the fact that the nation is already both the largest consumer and producer of the precious metal.
The country launched a yuan denominated gold benchmark yesterday (4/19/2016) on the Shanghai Gold Exchange. This allows gold transactions to be conducted without dollars, separate from the New York and London metals exchanges that have dominated the gold market for decades. The price was set at 256.92 yuan ($39.69) per gram which is equal to $1,234.50 an ounce
Abandoning the Dollar?
The yuan denominated gold fix could be one of the first signs that the world is abandoning the dollar. If the dollar weakens or loses its reserve status that would almost certainly be bullish for gold because gold generally rallies when the dollar is weak, and is seen by many as an alternate global currency that can replace the dollar.
However, I do not see how China benefits from a weak dollar. Consider the fact that China is the worlds top holder of U.S treasuries and depends on a strong dollar for its favorable trade balance with the U.S.A.
I do not have the information to provide a confident prediction on where this development will take the price of gold in the long term. However, in the short term, it has provided a healthy spike in prices, the market interprets this information as bullish.
How can I profit for this?
BULL PUT GLD (gold Etf) 112/105 on 17th June.
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