China’s Gold Backed Oil-Benchmark
China’s Gold Backed Oil-Benchmark by Rory – The Daily Coin
There is a single article that is floating around and causing a big stir within the gold community. This one article, which The Daily Coin has published a couple of derivatives of the original, is based on nothing. There are zero source links and the author of the original article has admitted to Koos Jansen, Bullion Star, there is zero substance to the article. This is, what could be called, stunning or a game-changer.
Have we all been played? Was this a trial balloon to redirect attention or something even more nefarious?
A short time ago I was swapping emails with Louis Cammarosano, smaulgld, and Louis explained that he, too, had reached out to the author of the original article but never heard back. The original article appeared in the Nikkei Asian Review and the first article to capture most of the attention was produced by a well known and well respected website. This article took a life of its own and, even today, has captured the attention of some truly great analyst and researchers.
Smaulgld produced a video pointing out some of the flaws within the original article and Koos Jansen confirms these, among other, flaws,
If there is something to this story the author is not forthcoming with anything to support the claims.
First is my original request to Koos:
Good afternoon Koos,
Hoping all is well in your part of the world.
Do you know anything, that you can share, about this story of China offering a gold backed oil contract? It seems there are a lot of questions around the article that surfaced a couple of weeks back but nothing has been reported since that one article was published. I know you keep a very close watch on the moves that China makes and this seems to be a fairly important piece of information.
If possible, I would like very much to have you on my show to discuss this topic. If you are unable to conduct an interview if you could share, via a reply to this email, anything you have learned it would be greatly appreciated. If it needs to remain private I would certainly respect your wishes.
The reason that I’m asking is earlier this morning XXXX [we will not be calling people out in a public forum] is now reporting on this singular story. If there is something to this story, it would be great to have you explain that to the world. If there is nothing to this story that would be helpful to quiet, what appears to be, nothing.
Thank you for your time and consideration.
Here is Koos’ reply
In my opinion the story is misleading. The journalist in question from Nikkei Asian Review confirmed to me he used no official sources on the “oil benchmark backed by gold” story.
An RMB-oil futures contract can’t be backed by gold (as far as I know). Such a contract is about the future oil price denominated in RMB. Upon settlement the RMB can be used to buy gold, naturally, but any currency in the world can be used to buy gold. So I’m not seeing any direct relationship between the new oil futures contract and gold.
You might know that futures contracts are hardly ever used to buy or sell anything physical. Futures are meant for hedging and speculating (and hardly ever are delivered). It’s true that because of its hedging function the contract is able support RMB oil trade. But I don’t think it will be an instant game changer. Currently, countries like Iran and Russia can already sell oil for RMB (or gold if they wish to). What’s stopping them?
One of China’s primary goals is to internationalise the renminbi, for it to become an international trade and reserves currency. Simplified, the more people use renminbi outside of China, the more yuan China can print for importing goods. Like oil.
For this purpose China likes to see as much commodities to be traded in RMB (gold, oil), and as many commodity benchmarks to be denominated in RMB. This all helps RMB internationalisation.
When zooming in on the Nikkei article we can spot the misleading statements:
“China sees new world order with oil benchmark backed by gold.”
“China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.”
In the first quote we read “backed by gold”. Many people will think this implies a fixed parity (price) between gold and oil, or gold and renminbi. But who’s going to defend this parity? The Chinese government? A futures exchange connects traders – longs and shorts – to hedge and speculate. I doubt the Chinese government will mingle in the oil futures trade. Let alone that gold will be part of this futures trading.
In addition, on Twitter I’ve read that people think all the gold in China can be used “to back the contract”. But they seem to be ignorant about the mechanics of the Shanghai Gold Exchange (SGE), the Chinese domestic gold market and the Shanghai International Gold Exchange (SGEI) that is located in Shanghai Free Trade Zone. All the gold in the Chinese domestic gold market is prohibited from being exported. So how can that gold be related to the new oil contract?
Surely China is working hard to promote their currency internationally. And they are eager to have more oil and gold priced and traded in renminbi. It’s also true that Russia and Iran, and other countries, like to use less dollars in international trade. But, in my very humble opinion, the Nikkei story should be taken with grain of salt.
(If you like you can use my text for publication)
End of Koos’ reply