Shanghai Gold Becomes The People's Gold

Shanghai launches its gold exchange
Premier Li Keqiang, who visited the FTZ on Thursday, said he has been closely following the progress of the international bourse and commended the SGE for launching trading. Li said more efforts are needed to promote the cross-border use of the yuan and also take stock of the various measures being undertaken at the FTZ.

The head of the People's Bank of China, the central bank, Zhou Xiaochuan, and Shanghai Mayor Yang Xiong jointly pushed the button that marked the launch of the first trade. The first matched deal between SGE's international members was completed a minute after the launch, and enabled China's gold market to be linked to the international market.

Video of the opening.

Li Keqiang on September 18th at Bank of China, visit Shanghai branch of the FTA. Turning to the international board of the Shanghai Gold Exchange is known as the "Shanghai gold" will start trading the evening, the Prime Minister said that the release of the Chinese continue to expand the financial opening up a strong signal. Since the reform and opening up, Shanghai has "a good drums Amoy gold", gold will continue to release future potential to benefit more people, so that "Shanghai gold" into "the people of gold."

Here's an opinion piece: In order to internationalize the renminbi, China must first internationalize the gold market.


The article has two charts showing trading volumes in NY, London and Shanghai. The growth in Shanghai below comes before the opening of the international board.

This chart shows the trade volume in London and NY in tons (unit is 10,000) of gold.

Here is Shanghai versus NY trade volume.

Although early in the 1970s, has been non-monetary gold in the international monetary system, but its image is still popular quasi-money. The overview of the history of the rise of world currency, whether it is sterling as the representative of the British Empire or the sun never sets in the dollar as the main body of American hegemony, are the cornerstones of the aid was able to establish a gold piece.

Way through the colonial British Empire has accumulated a lot of gold, and to develop a gold law in 1816, the issue of notes convertible into gold, opening the true sense of the history of the gold standard.

American holdings of gold reserves through continuous, 96 tons up by 1913 when the Federal Reserve gradually increased to 6172 tons after the First World War, 15,000 tons before the Second World War, 20,200 tons after World War II. Almost had it that time nearly 80 percent of the world's gold, the ultimate success of the dollar and gold was bound together. To $ 35 an ounce of gold convertibility determine the global monetary hegemony of the dollar.

Similarly, the yuan only with gold can really go international. However, the current economic environment and the year compared to the Anglo-American has undergone tremendous changes in China through the bulk purchase of gold to pave the RMB internationalization has been a non-optimal choice. As of the end of 2013, the world was mined gold has reached 177,000 tons. These are mined gold, more than 60 percent based on the presence of free gold gold manufactures, which exist in the form of jewelry, which is about 88,700 tons. Official and private holdings of about 66,500 tons, ie gold survive in the world with nearly 40% of the gold is as negotiable financial nature reserve assets exist in the world financial flows Basin. Since gold finished products in the market is very fragmented, it is difficult to focus acquisition, that is, the more easily obtained in the market, only that 40% of official and private holdings of gold negotiability. It is worth noting that in this 40 percent and half of them belong to private, these gold ownership is also more dispersed. This means that, in the current environment, China wants 80% of global gold would buy it, is almost impossible.

Moreover, even if this 80% of the gold can be purchased China, let aside, China will stimulate a lot of gold to buy gold rose sharply this issue. Just to the current price of $ 1,200 / ounce to calculate, China will be 80% if global gold in the bag, you need to $ 5.46 trillion, nor less than 4 trillion currently China 's foreign exchange reserves are within their control.

With the rapid development of the global financial derivatives market, even if China can be 80% of global gold buying down, it does not necessarily able to really grasp the global gold right to speak. In recent years, only the spot market gold or gold futures trading volume on the market a year nearly 18 million tons, and the total amount of gold mined worldwide is considerable.

Therefore, control of physical gold in this way simply does not work, we can also choose to grasp the gold pricing right to speak this way.

However, as the world's largest gold consumer, gold-producing countries of China, is facing such a dilemma: there is no right to speak in gold pricing. Its root cause is due to the internationalization of China's gold market is not enough.

Although the 2001 China began after the gold market, whether it is gold or gold production consumption, investments are explosive growth. China as early as 2007 got on the top spot of the world's top gold-producing countries, and has maintained records since. Meanwhile in China crazy aunt sweep gold, driven by a substantial increase in physical gold consumer, China logical last year to overtake India as the world's largest consumer of physical gold. In the domestic gold market sales booming, the Chinese gold investment either breed or size of transactions in the past few years also been a great development, but due to insufficient degree of international gold market, the trading volume either with London gold spot market or futures market compared with the United States, are a lot less.

Typically, for the price of a financial product, where the market is its trading volume to determine the size of its ability leading prices. Which trading volume trading market, it means that the price can dominate the market, which has a corresponding right to speak.

From the international spot gold market, the early 18th century to the 19th century, the global gold refining, marketing and trading are in the center of London, London almost a monopoly of the world's largest gold-producing countries - all gold sales in South Africa, and the world gold Most of the gold market is sold through the London gold market, coupled with the London Bullion Market Association's top five gold dealers core position in the international market, many of them with gold internationally, gold dealers have a wide range of contacts throughout the trading network worldwide, making the London gold market has become the core of the core markets in the world worthy of the gold spot trading, the trading volume accounted for almost 90% of global gold OTC volume.

Thus, the London gold price naturally became the axis of international gold prices, gold prices in many countries and regions are based on the London gold price as a benchmark, and then around the price fluctuations of supply and demand in accordance with their. We usually refer to the international spot price of gold was referring to the price of gold in London.

For gold futures prices, the gold futures trading mainly in the United States, the New York Mercantile Exchange and the Chicago International Financial Exchange for the two largest U.S. gold futures market. But because the New York Mercantile Exchange is close to banks and financial institutions as the main international clients, while Chicago International Financial Exchange is the main domestic customer, the transaction is only one tenth the size of the New York Mercantile Exchange. Thus, the New York Mercantile Exchange, gold futures prices in the market's influence is far greater than the price of gold futures Chicago International Financial Exchange. New York Mercantile Exchange by virtue of its huge trading volume, basically dominated world gold futures prices trend. Thus from the New York Mercantile Exchange, gold futures prices are correspondingly become the international benchmark price futures prices.

In recent years, the New York Mercantile Exchange trading volume increased rapidly, its trading volume has been close to the London gold market trading volume. As shown below, since 2006, the London gold market trading volumes remain high, although little change, but the New York Mercantile Exchange, gold futures trading volume has increased rapidly, a great catch of the London stock market trading volume potential.

With the rapid rise in the New York Mercantile Exchange, gold trading volume, the futures prices influence has gradually increased. That the London gold bullion market maker quotes for basically need to refer to the price of gold futures the New York Mercantile Exchange.

And on the New York Mercantile Exchange, gold futures prices on the gold market's influence has been the dominant trend this point, investors participate in the gold market in recent years, the feeling should be deep. Whenever gold prices fluctuate significantly matching period in the United States, will be accompanied by the New York Mercantile Exchange, gold futures intraday transaction. According to historical statistics, the New York Mercantile Exchange, the price volatility during the opening day price volatility of gold accounted for as high as 70% -80%.

To sum up, the price of gold has the right to speak with their high volume correlation. Not a lot of gold reserves or the absolute leadership of the gold trading volume, the right to speak is a talk. China wants to master the international gold price in a certain right to speak, must not shout, but need real action. The only path is to increase its international gold market participation, increased market trading volume.

According to China's current existing Shanghai Gold Exchange and Shanghai Futures Exchange trading volume data, although the sum of both trading volume and trading volume compared to the New York Mercantile Exchange is still a large gap, but we can see a clear positive signal. As shown below, in between 2009-2013, China's gold trading volume as a whole show a gradual increasing trend, especially in 2013, its trading volume appeared leaping growth, increasing by 1.8 times. With the Shanghai Gold Exchange, the launch of the international board, "Shanghai Gold" for its unique oriental charm will attract in addition to domestic investors, more international investors to participate. Its trading volume realized looking through, or is it just time to catch up with Europe's problems.

And after the upgrade to take the absolute global leadership position in China's gold market trading volume in RMB-denominated "Shanghai gold" prices will naturally become the core of the international gold market price. Once China grasped the notion of gold pricing, the yuan ripe internationalized.

Thus, the only way to achieve gold pricing right to speak is the internationalization of China's gold market. Shanghai Gold Exchange, the launch of the international board, is a crucial step towards our right to speak for the price of gold.

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