China is the top producer and the top buyer of gold. China is working to enhance its position in the gold markets by getting a yuan-denominated gold benchmark to be traded on the Shanghai Gold Exchange (or SGE). SGE would act as the central counterparty where the banks could settle their trades. This may eventually give more liberty to China as gold can be directly converted to the Chinese currency, which could pose a threat to London and New York gold markets.
China will most likely float a one-kilogram contract on the exchange, and its success would be highly dependent on participation by the overseas banks that handle foreign transactions for precious metals. China has historically been one of the biggest markets for precious metals.
However, there seems to be a delay in the launch of yuan-denominated gold on SGE. The reasons aren’t clear, but a possible reason could be that major participants may be worried that China wants to dominate gold markets.
Tracking mining companies and ETFs
The fall in precious metals in the past few months has taken a toll on the ETFs that track precious metals investments and also on mining companies. The Direxion Daily Junior Gold Bear 3X (JDST) and the ProShares Ultra Silver (AGQ) have lost 9.4% and 3.1%, respectively, on a 30-day-trailing basis. Mining stocks like Royal Gold (RGLD), Alacer Gold (ASR), and Barrick Gold (ABX) have 45.7%, 1.6%, and 35.2%, respectively, on a one-year-trailing basis. These three companies together determine about 12% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).