Gold price set by China?

From June 14 through Aug. 7, the price of gold, as measured in U.S. dollars, fell 9.3 percent. While that may sound horrible to those whose wealth is denominated in U.S. dollars, the story is different in China. During the same period, the value of the Chinese yuan currency fell against the U.S. dollar by 9.4 percent.

What that means is that those whose wealth is denominated in Chinese yuan not only held their own with physical gold, they were slightly ahead over just owning the fiat currency.

Gold is not the only metal that seems to have tracked the value of the Chinese yuan since June 14. In the same time frame, the price of silver fell 11.1 percent to the dollar, platinum dropped 9.1 percent, and palladium was down 10.1 percent.

Further, it was not only precious metals that tracked the yuan more closely than they did the U.S. dollar. Over the same time frame, here is how the prices of these other metals performed compared to the U.S. dollar:

Aluminum: –12.2 percent
Cobalt: –27.8 percent
Copper: –14.3 percent
Lead: –15.8 percent
Nickel: –13.4 percent
Steel scrap –5.2 percent
Tin: –6.2 percent
Zinc: –19.7 percent

Among all of these metals, though, the price of gold most closely tracked the rise and fall of the yuan against the U.S. dollar over the past seven weeks. That has led some to question whether the Peoples Bank of China (PBOC) is now effectively setting the global gold price.

On July 27, Congressman Alex X. Mooney, R-W.Va., wrote a letter to Treasury Secretary Mnuchin and Federal Reserve Chair Powell with several questions. His third question read, “Are the Fed and Treasury aware of the recent correlation of the gold price with the price of the Chinese yuan and the valuation of the IMF’s Special Drawing Rights? Do these correlations reflect surreptitious intervention in U.S. currency markets by China and currency manipulation by China? What do the Fed and Treasury think of all these correlations?” As I write this, Mooney has yet to receive a response from either Mnuchin or Powell.

You can read Mooney’s entire letter online at http://www.gata.org/files/MooneyToTreasury&Fed-07-27-2018.pdf.

In the weekly COMEX Commitment of Traders report released on July 27 for data as of July 24, the large speculators gross short positions were 172,203 contracts (representing 17,220,300 ounces). That was an all-time high, breaking the previous record set three years earlier by 8 percent. Large speculators include money managers, hedge funds, and other major investors who are not directly involved in the gold industry.

It is possible, as no one knows for sure other than parties directly involved, that the PBOC, as part of their long-term physical gold acquisition program, may be surreptitiously and deliberately shorting the paper gold market to drive down the price in order to purchase more physical gold at bargain prices. Thus far, this is only an unproven speculation.

There are recent parallels where significant increases in the COMEX gross short positions held by large speculators clobbered the price of gold:

• From Feb. 3, 2015, to March 24, 2015, the gross short positions rose 137 percent while the price of gold sank 6.9 percent.

• From Oct. 27, 2015, to Dec. 24, 2015, the gross short positions jumped 159 percent as gold’s price dropped 11.6 percent.

• From Nov. 1, 2016, to Jan. 3, 2017, the gross short positions climbed 53 percent with gold’s price falling 15.0 percent.

The price of gold recovered all the other times after a major increase in the COMEX gold large speculators gross short positions. It is always possible that the recent weakness of gold against the U.S. dollar could be a short-term phenomenon.

Patrick A. Heller was the American Numismatic Association 2017 Exemplary Service and 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2017 and 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).