What happens to gold when the yuan floats free of the dollar?

by Lawrence Williams
27-Apr (MineWeb) — To become part of the IMF’s SDR basket, China will almost certainly have to unpeg its currency from the US dollar. A massive increase in its gold reserve may be an integral part of this process.

There has been much speculation in recent weeks regarding the likelihood of China announcing a much bigger gold reserve as a prerequisite for possible inclusion of the RMB (renminbi – or yuan the words are effectively interchangeable in terms of the Chinese currency) into a reset Special Drawing Right as a preliminary move towards recognition of the yuan as a global reserve currency. China has gone on record as suggesting that this should happen. Discussions within the IMF on a possible revision to the SDR will commence next month. But it is also apparent that there is little point in the yuan being brought into the SDR while it remains pegged to the US dollar. The idea of the composition of the SDR basket of currencies is that it should represent broad currency stability and having two significant components pegged directly to each other would rather defeat the point behind it.

…Given the announcement of a major increase in Chinese gold reserves may all be a prerequisite for these changes all coming together, then there would an undoubted impact on the price of gold. Once China has built its gold reserve to the required level it would have no interest in helping to maintain a depressed gold price level – indeed it may feel that it is better suited to command higher prices and could utilise its huge forex reserves to cement its global position in this respect.

[source]

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