Beware of China’s Pan Asia Gold Exchange

Sajith Kumar – Commodity Online Sept 28, 2011

Gold markets will never be the same again once China establishes the so called Pan Asia Gold Exchange (PAGE), scheduled to open in June, 2012, analysts predicted.

The Exchange, which will be opened at Kunming, capital of China’s southwestern province of Yunman will certainly change the way gold prices are setting, analysts added.

The setting up of the Exchange is entitled to change global supply and demand dynamics and how gold can be traded.

Many believes that it will create greater transparency in the markets because the gold will be priced in terms of an alternative currency, bypassing the dollar, which remains global currency.

The Exchange, announced as part of China’s12th five year plan will initially allow individuals to buy physical gold from their computer at home. Initially, the 300 million clients of Agriculture Bank of China will be able to buy 10-ounce mini contracts on the PAGE.

The main attraction of the exchange is that it will allow average Chinese to buy physical gold or set up an account with a brokerage firm and trade futures, to sell and buy in yuan.

Average Chinese has been able to buy and own physical gold since the opening of the Shanghi Gold Exchange in 2002. With the new Pan Asian Gold Exchange, the Chinese peoples’ ability to own gold and Silver has been expanded by enabling them to buy it online, analysts added

It will also allow International investors to have access to the yuan through these Gold contracts once they were allowed to purchase International Spot Contracts through the exchange.

A gold buyer will be able to receive a 90-day International Spot Contract and actual title to the gold he/she buys, not just a futures contract or an unsecured note from a bullion bank, or an international banking institution.

Analysts said PAGE could pose a challenge to the near monopoly on gold price discovery currently held by the members of the London Bullion Market Association (LBMA) that include many large banks.

Until now, the mechanism has been that the futures market in London drives the spot price of gold. The LBMA and COMEX are supposed to have 90% unallocated versus 10% allocated contracts, so for every 100 OZ’s of paper gold, there is only 10% allocated backing them.

Six major Chinese banks will fix the gold price every morning at 8am their time.

Once the exchange opened, it will provide an alternative playing field for global gold investors who hitherto have had to rely on unsecured gold futures contracts and the bullion banks to determine the price for gold.

The PAGE gold’s in 10 ounce bars can be delivered to the customer with little effort.

Leasing and selling of gold has been a profitable game for the savvy players involved. Gold investors are definitely going to lose on PAGE, analysts said.

What magical impact the PAGE will create in global gold markets is a mystery now but it will significantly change the way gold gets traded now.

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