Bank of China (BoC) is First Chinese Bank to Join Gold Fix

The London Bullion Market Association has announced that the Bank of China has joined Goldman Sachs, UBS, Barclays, HSBC, Bank of Nova Scotia, Societe Generale, and JP Morgan as the first Asian bank to participate in the new daily gold fix by ICE Benchmark Administrator.
 
The benchmark or “gold fix” is the twice-daily agreement of the major financial institutions on the current gold price. Conducted via an electronic auction-based system, the benchmark allows for faster and easier transactions among producers, consumers, and investors.
 
The new ICE Administrator Benchmark began in March as a much-needed reconfiguration of the process was initiated after 10 major banks were found to be manipulating the price. Previously, the “London Gold Fix” was conducted by a secure telephone call twice a day, (when markets opened in New York and London). But that arrangement was subject to much criticism as it was found to be an environment that was ripe for collusion.
 
The first official London Gold Fix occured on September 12, 1919. Before the secure telephone call system was developed, it was conducted in person in the offices of N.M. Rothschild and sons.
 
On paper, China is the world’s second largest consumer of gold and the largest producer (but many analysts believe China is also the largest consumer).
 
China joined the London Bullion Market Association in 1987 and has been participating in London-based gold trading for more than 40 years, according to BoC manager Yu Sun.
 
While joining the ICE Benchmark will certainly give China more influence over the day-to-day pricing of gold, the country is also currently working to establish its own benchmark pricing. Last month, the Shanghai Gold Exchange announced that it had begun testing its own electronic-pricing system. The current administrator both of the platinum and palladium fix is the Hong Kong-owned London Metals Exchange.
 
Of course all of this news should be taken with the fact that China has been making aggressive moves to improve the internationalization of the Renminbi and get it included in the IMF’s Special Drawing Rights later this year.
 
China has been surreptitiously hoarding gold in recent years and many expect the country to reveal their updated holdings later this year as part of the process to join the SDR and support the price of the Renminbi once it is de-pegged from the dollar. With more influence over the gold fix, China will have better control over the value of their gold hoard.

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