Does the Yuan-Gold Benchmark Matter? - AnalystsBy Sarah Benali
Tuesday April 19, 2016 10:32
(Kitco News) - China’s push for more control in the gold market was seen further with the launch of its yuan-denominated gold price benchmark Tuesday.
However, until the country’s currency gains international reserve status, the Shanghai Gold Benchmark Price should not have much of an impact on the gold market, say analysts.
“I’d see this as a minor technical change for the convenience of the local market rather than anything with global implications,” Julian Jessop, chief commodities economist for U.K.-based Capital Economics, told Kitco News in an email response.
“Some domestic players may prefer to be able to price (and hedge) in renminbi terms. But this will not materially affect the balance of supply and demand in the market,” he added.
Jeffrey Christian, managing partner of research firm CPM Group, said that although this is a significant development, it is "old news."
“I see it is easy for commentators to read too much into it, saying this boosts the yuan’s stature in international markets (it does not) and may reflect the government's desire to make gold part of a currency system (it is not and the government does not want that anyway)," he said.
He added, the Shanghai Gold Exchange benchmark price simply shows a move toward shifting gold’s “price-making” center away from London towards Asia.
However, Ruth Crowell, chief of the London Bullion Market Association, doesn’t seem too concerned, noting that the “LBMA is always supportive of initiatives to increase transparency and price discovery in the bullion markets.”
George Gero, managing director with RBC Wealth Management, mirrored Crowell’s comments in that he welcomed the change in the gold market.
“Competition is healthy for price discovery and arbitrage increases Comex volume and Globex volume in gold and longer term swap trades,” he said.
However, one analyst does see the Chinese gold fix having more of an impact than perceived.
Ken Hoffman, head of metals and mining research for Bloomberg Intelligence, told Kitco News that the benchmark shows China’s commitment to gold and could see this impacting the Chinese monetary system and the gold market.
“It will be key as to how this develops and if China further integrates gold into their monetary system. With its debt and currency issues. Gold may have a bigger role to play,” he said.
The Chinese benchmark price is fixed twice daily by looking at trading from 18 members on the Shanghai Gold Exchange. On Tuesday, the afternoon price was set at 257.29 yuan ($39.795) per gram.