Asian disenchantment with Western gold market manipulation

Asian disenchantment with Western gold market manipulation

Lawrence Williams

The forthcoming launch of a gold kilobar contract by the CME group in Hong Kong is an element in Asian attempts to wrest controil of gold benchmark pricing from the West

A phrase at the end of a Reuters report on the forthcoming launch by CME Group of a gold futures contract in Hong Kong caught my eye.  In commenting on the implementation of several gold futures trading options in the Asian region the report noted that Asia is the top consumer of physical bullion in the form of jewellery, bars and coins, but there is growing disenchantment with benchmark prices set in the West, which tend to be influenced by speculators.”  The new Hong Kong contract is due to go live on January 26th.

That disenchantment note is perhaps understating the case. There has to be little doubt that speculative elements are indeed manipulating the gold price on COMEX using the paper gold futures markets to do so.  It is hard to see any other reason behind some of the strange pricing moves involving enormous trades often at very thin trading times.  Recently most of these moves have resulted in large downwards price falls and not surprisingly the gold bulls have been crying ‘foul’.  However there may also come a time when such trades could move the markets sharply in the other direction. This, though, would run contrary to a strongly held theory within the pro-gold sector that the bullion banks, at the behest of certain central banks, are driving the price down to suppress the gold price lest a soaring gold price is seen as an indicator of serious currency weakness and instability.

But whether these new Asian contracts can indeed counter the COMEX speculative activity in particular is rather less certain.  So far the take-up has been far from immense on the Shanghai and Singapore bourses.  As the Reuters article again points out liquidity appears to be an issue with the 25kg contract on the Singapore Exchange, and the three new international contracts on the Shanghai Exchange, yet to see significant trading volumes.

But the setting up of the new contracts does indicate a change in attitude in Asia and perhaps represents just the beginning of an attempt to wrest control of benchmark price setting away from the U.S. and Europe and, given the huge flows into the Asian markets, there is a strong chance that they will succeed in time.  The Chinese in particular find it hard to understand why, when demand is running so high (Chinese consumption alone has accounted for around half total global gold supply from all sources in both 2013 and 2014), that the gold price has been falling over the same period.  They are looking to implement a price benchmarking system which better reflects the now-dominant Asian physical precious metals market activity.

Martin Murenbeeld of Dundee Capital Markets in Canada, and a hugely respected analyst and forecaster of the gold markets,  has reminded me that China itself could not set a benchmark price for gold while there remain gold import ../../../../css/and_export_controls__but_perhaps_Hong_Kong_could._ He_feels_that_the_latter_should_perhaps_set_up_a_rival___8216.css;fix’ to that in London and that this might one day grow to supersede the London benchmark.

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