Russia and China could be leaders in setting the global price of gold based on physical trading among the countries and China, India, Brazil and South Africa – the so-called “BRICS” emerging economies. The five countries are major producers and consumers of commodities, including the yellow metal.
Such a move would chip away at the dominance of New York and London, the major trading centers that set the price of gold, according to Russia's state-owned RT news channel. It also would lessen the dependence on a fiat currency like the U.S. dollar that the Federal Reserve debases during any signs of an economic slowdown.
BRICS cooperation in the gold market was first unveiled in April by the first deputy chairman of Russia’s central bank, Sergey Shevtsov, during a visit to China, RT reported.
“We (the Central Bank of the Russian Federation and the People’s Bank of China) discussed gold trading,” he said. “The BRICS countries (Brazil, Russia, India, China and South Africa) are major economies with large reserves of gold and an impressive volume of production and consumption of the precious metal. In China, gold is traded in Shanghai, and in Russia in Moscow. Our idea is to create a link
The London Over-the-Counter (OTC) and the New York COMEX futures exchange currently set the international gold price with derivative contracts, but are detached from the physical gold market. In London, the derivative consists of fractionally backed unallocated gold positions that are predominantly cash-settled. In New York, the derivative is exchange-traded gold future contracts that are predominantly cash-settled and backed by very little real gold.
Russia’s central bank is boosting the country’s gold reserves to meet a goal set by President Vladimir Putin to make Russia less vulnerable to geopolitical risks, RT said in a separate report.
As of November, Russia had 1,801 tons of gold accounting for 17.3 percent of all reserves. Russia is the sixth largest gold owner after the United States, Germany, Italy, France, and China.
Russia’s gold reserves have increased sixfold from 343 tons during Putin’s presidency, according to Gold.org data.
“Gold is an asset that is independent of any government, and in effect given what is usually held in reserves, any Western government,” Matthew Turner, metals analyst at Macquarie Group in London, told Bloomberg. “This might appeal given Russia has faced financial sanctions.”
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