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Jan Nieuwenhuijs: China's central bank manipulates Shanghai gold price
By Jan Nieuwenhuijs
Gainsville Coins, Lutz, Florida
Thursday, July 20, 2023
By obstructing gold imports and exports, the People's Bank of China greatly amplifies the gold premiums or discounts on the Shanghai Gold Exchange relative to metal traded in London.
In the past 12 months the PBoC has restricted gold imports to curb capital flight and defend the renminbi, resulting in exaggerated Shanghai Gold Exchange premiums. With these interventions the Chinese central bank risks preventing the gold market it supervises from functioning properly, and stagnates internationalization.
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The core responsibilities of the PBoC are to "maintain financial stability ... and to maintain the stability of the value of the currency and thereby promote economic growth."
To this end it wants to strengthen China's economic security by letting the population accumulate gold. Additionally, the Chinese central bank uses capital controls to manage the renminbi's exchange rate.
A dilemma arises, for example, when Chinese people rush to buy gold as a form of capital flight, which undesirably weakens the renminbi.
Since 2016 there have been several periods in which the PBoC restricted gold imports into the Chinese domestic market to stem capital flight, lifting Shanghai premiums over the international benchmark (London spot).
Remarkably, when there is no capital flight and China is a net gold importer, the PBoC seems to aim at a 0.5% floor for Shanghai premiums. ...
... For the remainder of the analysis:
https://www.gainesvillecoins.com/blog/pboc-manipulates-sge-gold-price
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