The Pan Asia Gold Exchange (PAGE), owned and operated by the Chinese Government, opens for business in the next few months and is expected to be fully operational by the end of 2011. In short, there is a new gold trading market in the wings with the potential to change global supply and demand dynamics and how gold can be traded.
Sep. 8, 2011, 6:20 PM
Two developments of great significance — in China and Russia — have attracted little attention from the Western financial media that is totally obsessed with the calamitous fiscal crises at home. We think you should know about them.
The Pan Asia Gold Exchange (PAGE)
The Pan Asia Gold Exchange (PAGE), owned and operated by the Chinese Government, opens for business in the next few months and is expected to be fully operational by the end of 2011. This development represents an unprecedented challenge to the entrenched institutions that affect the price of gold and at the same time supports Beijing’s ambitions for world currency reserve status. In short, there is a new gold trading market in the wings with the potential to change global supply and demand dynamics and how gold can be traded.
Here’s the background:
PAGE will allow individuals to buy physical gold from their computer at home. Initially, the 200 million or so clients of Agriculture Bank of China will be able to buy 10-ounce mini contracts on the PAGE. Later, non-Chinese will be able to purchase International Spot Contracts through the exchange.
Ultimately, PAGE 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. With PAGE, 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 certain international banking institution. The PAGE gold’s in 10 ounce bars can be delivered to the customer with little effort. The international bullion banks, have been accused for years of manipulating the gold price. Such manipulation will now be more difficult.
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.
For years, their practice has included leasing gold often from central banks and then selling it into the market to drive the price down. Leasing and selling of gold has been a profitable game for the savvy players involved. Every game has a loser, however, and in this case it has been less sophisticated gold investors. The selling activity has often created panic among gold investors who sell at the wrong time allowing the short sellers to buy back the bullion at low prices.
PAGE provides an alternative route that bypasses the bullion banks of the LBMA.
PAGE also provides a new way for international investors to own Chinese currency — the Renminbi (RMB). Here’s how: The buyers will purchase gold contracts denominated in RMB. They can then hedge out the gold in the dollar-based markets. As a result, they effectively own RMB.
We see here yet another example of multiple Beijing initiatives opening the RMB to world investors. Over time, these innovations will enhance the value of the RMB and create a deeper, more liquid foreign exchange presence for the Chinese currency. PAGE is another internationalization step forward for the RMB in the direction of world reserve currency status.
The advantages of being the world reserve currency, as well as the responsibilities involved, have not been lost in the Chinese government. They won’t rush the process, but they clearly have a long term plan.
Meanwhile, In Russia…
As the Chinese continue to lay the groundwork to be the world’s next reserve currency, Russian Prime Minister Putin is pursuing plans for his own region. A year ago he created a union between Russia, Belarus and Kazakhstan that removed tariff and custom controls along their internal borders. According to a recent article in the Financial Times, his arrangement will expand in January into a “common economic space” with freedom of goods, services and capital. A whopping market of 165 million people — or 60 percent of the former Soviet Union’s population — will be created. The leaders of the three countries envision a Eurasian economic union by 2013 and have even discussed a common currency at a later date.
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