My latest article on Mineweb looks at the hugely anomalous situation whereby the gold price is effectively set by the U.S. market, but gold demand is virtually all elsewhere – primarily in Asia where, of course, China and India dominate. The price currently fluctuates around U.S. economic data and whether this is likely to lead to the Fed raising interest rates sooner rather than later, but where the gold is being bought whether U.S. interest rates may rise a quarter of a basis point in June, September or whenever is a total irrelevance.
China in particular is well aware of this and is making moves to have more control over gold price setting itself, and it is interesting also that many of its recent initiatives – the latest being the setting up of the $16 billion Silk Road gold fund – involve gold. China certainly sees gold as playing an increasing role in global finance and trade, and here it is aligned with Russia which has been adding to its own gold reserves on a regular basis. It is widely believed that China is doing so too, but without reporting the additions to the IMF until it deems it politically expedient to do so.
China also feels that the U.S. in particular is trying to sideline it economically, as the former is worried about the latter’s potential impact on the U.S.’s hitherto dominant position in world trade through the dollar’s use as the world’s reserve currency. China want the yuan to have a much greater role – and if it sees this as being blocked by the U.S. it sets up parallel institutions to rival the U.S. dominated ones – the Asian Infrastructure Investment Bank is a prime example which could grow to rival the World bank and the IMF. There is also a belief that China may be preparing to set up a rival to the IMF’s super currency – the SDR – if it blocked from becoming part of this currency basket again this year.
Interesting times in the global financial sector.#
To read the Mineweb article click on: Gold: The U.S. sets the price but Asia does the buying