China Establishes their own Gold Market, Preparing to Monetize Gold

Clearly, gold is returning to its role as money, the ultimate store of value and settlement medium. The Chinese are deftly, and quietly, preparing to exit the dollar-denominated international system by establishing their own regional gold market. There is even overt mention of monetizing the gold, which, in plain language, means a return to the gold standard as an objective unit of international settlement.

All the talk of the slow, almost impossible process of displacing the US dollar as international reserve currency would be rendered moot instantaneously if China backed a currency with gold. The dollar would be obliterated overnight if the Chinese introduced a trade currency pegged to gold.

Is it a coincidence that gold has spiked in the last 36 hours (hovering just below $1000/oz.)???


HONG KONG (MarketWatch) -- Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday. The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center.

"Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region," said Sunil Kashyap, managing director at Scotia Capital in Hong Kong, adding that the facility was the first with official government backing in the region.

The Hong Kong Monetary Authority, which functions as the territory's unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in an earlier statement. The 3,660-square-foot depository, located at the city's main Chek Lap Kok Airport, will serve as a "storage facility for local and overseas government institutions," according to the government statement.

Traders said the new depository facility could also foster new financial products, such as exchange-traded funds based on precious metals.

Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group Ltd., said that could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year.

"Central banks are increasingly aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal," he said.

Meanwhile, local newspaper reports said the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs.

Marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility, according to reports citing Raymond Lai, finance director with the Hong Kong Airport Authority. Efforts will also be made to reach out to commodity exchanges, banks, precious-metals refiners and ETF providers, the reports said. Management firm Value Partners planned to launch an ETF gold fund that will use Hong Kong instead of London as a repository for the gold backing the fund, local reports said Thursday.

http://www.marketwatch.com/story/hong-kong-recalls-gold-reserves-from-london-2009-09-03