Is China Preparing to Drop Hammer on Western Gold & Silver Market?

Well, it's been an incredibly volatile week in the gold and silver markets, with silver crashing all the way from its spike high of $120 late last week to below $70 last night. Gold has been a little different, peaking around $5,600 before pulling back under $5,000 again.

Investors who are new to the metals may be finding this massive whipsawing to be a little unsettling, but these kinds of moves are not unusual on the heels of multi-decade breakouts. Even after all of this, gold and silver are both higher than where they started the year -- and dramatically higher than where they were a year ago.

On the retail side, Money Metals continues to see huge buying and selling activity -- really at unprecedented levels in our 16-year company history. All the price swings have been attracting attention, with folks finding reasons to either buy or sell physical gold or silver -- depending on their circumstances or outlook. Money Metals has been staffing up like never before to handle the volume, and we certainly appreciate everyone's patience.

Turning to the topic of Asia, which is where a lot of the global demand for gold and silver is coming from, a new cooperation agreement between the Hong Kong Special Administrative Region (HKSAR) and Shanghai will facilitate new gold trading activity to help expand those markets. It's all part of a push to elevate the role of China’s two main financial centers in the global gold market.

Western markets – London, New York, and Switzerland – have dominated the gold trade for nearly two centuries. However, with gold progressively flowing from West to East, China and other Asian hubs are developing the infrastructure to challenge Western dominance. At the same time, it's been learned that Chinese President Xi is specifically working to elevate the Yuan to world reserve currency status.

According to a report by China Daily, the landmark gold deal signed by Hong Kong and the Shanghai Gold Exchange will promote long-term interconnectivity opportunities, with a more integrated renminbi-based Asian gold market in the making.

Under the cooperative agreement, the Hong Kong government will establish “a high-level, collaborative governance structure,” with the Shanghai Gold Exchange providing technical and regulatory input on system design, rulemaking, institutional access, risk management, and operational standards.

According to China Daily, the goal is to ensure the efficient development of the trade-clearing system for gold and alignment with international gold standards to create a cross-boundary, trade-clearing system for the precious metal and to create a regional gold reserve hub.

Hong Kong plans to launch a trial run of its centralized gold clearing system later this year. Officials will initially focus on system infrastructure and a regulatory framework before expanding the number of eligible participants.

Hong Kong also plans to expand its gold storage capacity from 200 to more than 2,000 tonnes over the next three years.

Abaxx chief economist David Greely said this all points to the fact that “the center for gold trading is increasingly moving East.”

Cooperation with the Shanghai Gold Exchange will reportedly include facilitation of physical gold delivery, warehousing, and further enhancing financial connectivity between the two markets.

The big question is whether investors, financial advisors, states, and national governments in the Western world are in the process of waking up to the central need for gold to shore up the system -- or if their financial power will continue to slowly bleed away.

Well before we get to this week’s interview let’s take a look at the once again highly volatile trading action for the week.

Gold is up now, about $60 or 1.3% to check in at $4,965 an ounce. Silver is well off the lows we saw in the mid $60s in last night’s trading, but is still down nearly $9 or 10.0% during this extreme up-and-down week in the silver market. The white metal currently checks in at $77.53 as of this Friday late morning recording.

As for the PGMs, platinum is down $100 or 4.5% since last Friday’s close to trade at $2,114. And finally, palladium is relatively quiet, gaining $13 or 0.7% to trade at $1,748.

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