Article from the China Gold Association (CGA) on China’s gold pricing power, translated by Soh Tiong Hum:
China Already Has The Gold Pricing Basis
Since June 2008 there’s a financial crisis wherein gold prices soaring from less than USD 1000 per ounce to the current USD 1700 per ounce are a microcosm of the exchange rate setting game between developed economies and emerging markets as well as a new round of global currency wars following the decline of dollar hegemony.
As a symbol of wealth, gold made tremendous progress in China, moving from strict central control to a free market today where individuals are free to purchase and own gold. Since 2007, China became the world’s largest gold producer consecutively for four years as well as the second largest gold consumer.
Despite China’s global status in terms of gold production, processing and consumption, it has embarrassingly no standing in the global gold market. Therefore once conditions are conducive, China should assert its place.
From external conditions, the weakening status of London gold fixing provides room for gold pricing in China. The London gold market as an investor-recognized center for gold pricing is now in decline together with the British economy.
Based on internal conditions, China already possesses elementary conditions for gold pricing.
1. China’s economic growth lays the foundation for gold pricing in China. Concurrently, restructuring and perfecting China’s gold market could make it a global gold trading center.
2. China’s leadership in gold supply and demand gives the market growth potential. China is one of the world’s foremost gold producer since 1990s; production exceeded 200 tons in 2002 and is global number one since 2007. At the same time, China is a consumer giant. Gold consumption reached 461.9 tons in 2009, equivalent to 11 percent of global demand, second only to India, the world’s second largest gold consuming country.
3. China’s annual increase in gold trading volume gives her right to price gold. After founding the country’s gold market, gold trading volume grew by more than 36% annually. Especially since 2007, China’s gold spot trading volume has become a global first and in 2009, the average daily trading volume of China’s gold market ranked the world fifth, becoming one of the world’s major gold market.
Necessary strategy to become a gold pricing nation:
1. Improve gold market mechanisms by nurturing and developing a number of gold enterprises, perfecting gold trading mechanisms, developing investment products as well as sound legal and regulatory framework.
2. Actively increase the international influence of Chinese demand.
3. Increase scale of gold savings to preserve the country’s economic interests through the right to price gold
4. Timely elimination of gold import and export controls. To ensure the smooth implementation of gold pricing and having a say in international gold fixing, import and export controls must be removed. This is because controls restrict gold flows and is not conducive for transmitting Chinese demand and supply to the international market. Because controls exist, prices for gold are quoted differently. Domestic gold transactions are quoted in RMB, gold jewelry exports are quoted in US Dollars. The difference becomes a barrier for gold pricing in RMB.