China is becoming more and more vocal over its desire to have a greater influence over the global mechanism for pricing gold. Given China is the centre of the world’s physical gold market it makes sense they would want to wrestle control away from the paper driven Comex market. After all, China is the world’s largest consumer and producer of gold.
In June, the Bank of China became the first Chinese bank to officially join the London Gold Fix. Two more Chinese banks are expected to join later this year. By obtaining a seat on the fix Chinese banks will be able to exert greater influence over the global gold market.
Traditionally London and New York have been the two main hubs for setting the gold price. However, very little physical gold moves through these centres, instead the price is established through the paper market. This has enabled the price to divorce itself from supply and demand fundamentals.
Despite having a huge influence in the physical market, China currently has very little control over the global spot price.
The gold price has actually declined in the wake of China’s recent stock market crash. However, many commentators believe if stocks continue to slide many Chinese investors will turn back to the ultimate safe haven.