China's Plan To Internationalize The CNY: The Gold Price Is Increasingly Being Set In The East
Since falling to $3,209 last Thursday morning, gold has rallied impressively.
Gold futures are up $200/oz since nearly reaching the $3,200/oz level on May 1st:
Gold (30 minute)
The gold rally of the last few trading sessions comes as China returns from its Labor Day Holiday. In addition, gold’s price ascent has taken place while Treasury yields continue to rise. The gold price continues to be set in the east during Asian trading hours; last night we saw gold futures rise more than $50/oz early in the Asian trading session.
If not already familiar, readers should listen to both videos that I shared over the weekend. The key thing to understand is that China is not only a voracious consumer of precious metals (the world’s largest), but China is also executing its plan to internationalize the yuan.
Two weeks ago, headlines crossed the Reuters wire about the PBoC planning to set up overseas warehouses to aid international settlement of specific products on the Shanghai Gold Exchange.
This is a big step toward usurping the US dollar’s dominant role in global commodity pricing. This move could gradually shift the global commodity pricing landscape, reducing reliance on the dollar and enhancing the yuan's role in international trade.
China's plan to set up overseas warehouses for the Shanghai Gold Exchange is a strategic step toward increasing the yuan's international usage, challenging the dollar's dominance in global finance, and reinforcing China's economic sovereignty amid shifting geopolitical dynamics.
With some of the recent moves in Asian currency pairs (Taiwan dollar, Singapore, etc.) it’s becoming increasingly clear that there are about to be some big currency resets taking place. These resets will see the US dollar depreciate against the currencies of various Asian trading partners, including Taiwan and possibly China. Those who speculate about further CNY devaluation are really missing the boat here. In order to shift its economy to being more consumption based, and less export based, the PBoC must allow the CNY to appreciate against other global currencies.
The magic threading of the needle scenario is likely to include CNY appreciation against fiat, in conjunction with CNY depreciation again hard assets like gold.
As I outlined last week, gold miners have quickly found support above their respective rising 40/50-day moving averages. I will be looking for Q1 earnings reports from Kinross (NYSE:KGC) and IAMGOLD (NYSE:IAG) after the close this afternoon (B2 Gold reports tomorrow).
IAG (Daily)
Earlier today, I took some trading profits on IAG shares that I purchased at the end of last week. However, I continue to hold a long term position into the earnings report today. Investors will be focused on the progress of the production ramp-up at IAG’s flagship Côté Gold Mine, including full year production and AISC guidance.
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