I thought I would throw the game of Monopoly in today's piece because "games" have rules and "rules" are what I'd like to talk about. There are all sorts of old sayings that still today are pretty much true. There's "he who has the gold makes the rules," "rules are made to be broken," "it doesn't matter what the game is as long as you get to make the rules," and of course, "it doesn't matter 'who' you vote for, it matters 'who' counts the votes."
This past Tuesday, Reuters reported that the Shanghai Gold Exchange got the approval from the central bank to launch a "global trading platform." This is truly big news and somehow I almost missed it. This will allow the Shanghai exchange to compete with and thus draw some power away from both the New York and London markets.
Why is this "big news" or even important you ask? For several outright reasons and for one that is not so obvious but I think will be in retrospect. First, the timing of this comes while the London fix is under scrutiny. The silver fix is apparently being abandoned and the gold fix is losing "fixers" and may be down to just two participants which obviously won't work from the sake of "appearance." Also, this comes at a time that Russia and China are announcing partnerships and speaking in terms of currencies to be used...theirs, not ours.
It is important to understand that the Shanghai exchange is the largest PHYSICAL market in the world. This is important because it precludes leverage. "Leverage" that can be used to push prices around with the sale of tens or even hundreds of tons in just minutes to crash the price (we saw at least two instances of this this past week). It means that if someone wants to sell, they must deliver the goods and settlement in cash is not allowed. It means that there will be no room for "naked" sales or sales from entities that do not intend to deliver but instead only want to "make" price...lower. This will become the new rule; if you sell... you must then deliver the goods. This is the obvious stuff, I also think that there is more to this than meets the eye at present.
If you have read my writings over the past month then you know that it is my theory that China would like to usurp the dollar's role of the world's reserve currency. I believe that they would like to "ratio" gold to the Yuan in some fashion. A global platform "open" to all will in my opinion allow and aid China to operate (in) the gold markets. Yes, the previous sentence was a play on words and if you subtract the word "in" then you will understand where I am going with this.
I believe that China is now the largest owner of gold in the world. The U.S. has liquidated its' gold over the years and the Europeans have either leased much of their gold out or it has been leased "for them." The Germans and Austrians might give you an opinion on this. OK, so if I am correct about China being the largest holder of gold in the world what would this mean and what would China naturally want? Obviously it means "power" and that power has shifted and gravitated toward them with each purchase of gold by them and each sale by the West. It also means that they would like to "make" (there is that word again) a higher price for gold but not for the reason that first comes to your mind. I know your first thought was probably of course China wants a higher gold price; it will make them rich and own it at a great profit.
NO! The Chinese do not think in this manner. They do not think in terms of "oh darn it, I should have waited a week or two to buy because I could have bought gold cheaper." No, this thought process is exclusive to Westerners who deep down want gold and silver to go higher so they can "make" more dollars or pounds or whatever. Follow this through and see if it doesn't make sense. If China were to make an announcement that they own and have now stored some big number like 5,000, or 8,133 tons (no just kidding because that number would be too plagiaristic!) or even 10,000 tons they would kill several birds with one stone. They would "own" proof that the U.S. must have sold them some of their stash because there is no other place it could have come from, i.e. Ft. Knox or from gold that was custodied in N.Y. for other Western nations. This in turn would pull back the curtain of lies so to speak on the dollar which would probably panic within days if not hours from such an announcement. The U.S. will be on life support without even one single bullet fired. China in my opinion has the ability to change the rules by simply announcing a large weight of gold holdings ...because a large number is believable, verifiable and also had to be someone else's gold in large part.
Now, the next logical step is that New York and London would be stripped of their power to "price" gold because it "may or may not really be gold." I say that it isn't "gold" that they are trading while the Nadlers and Jeff Christians of the world say that it is... we will see. The one thing that we do already and will know is that any "gold" bought or sold in Shanghai is the real, shiny 99.999 fine type. Through this exchange, China will have the ability to price gold far higher than it is currently. They can either "buy buy buy," stand for any and all gold at a chosen higher price or just sit back and let it happen. By "let it happen" I am saying that the market will discern for itself what "is and isn't" gold. We could see days where Shanghai gold goes up $100 while COMEX gold goes down $100. So, which one is the real price of gold?
Ah yes, there is just one more part to my theory and one that is a bit sketchy but I think makes total sense. If China announces and knows that they have more gold than anyone else, wouldn't they want to price it high enough to stifle any competition? Meaning that if gold became priced at levels where the common man was forbidden economically to buy; there would be little individual competition for the metal. In fact, a very high price might even bring out some selling and thus some extra supply for China to buy.
You see, having the largest stash of gold and the largest physical market is like a one two punch where they can dictate price and negate the paper frauds that are NY and London. Gold will then become a cash and carry market and no matter what happens on the COMEX, the price will be the Shanghai price. It's a pretty cool deal if you can get it, own the most of something, put your competitors out of business, punish them for their fraud, and make the price whatever you choose within reason. They know what they are doing and I'm pretty sure that they've known for quite some time now.