Monday, July 11, 2011

Former Goldman Trader: New Pan Asia Gold Exchange Will Rocket Propel Gold and Silver

Andrew Maguire, a former trader with Goldman Sachs, expects huge unforeseen demand coming in the physical gold and silver market because of the new Pan Asia Gold Exchange. During a recent interview, he explained his thinking.

Business Insider's Courtney Comstock pulled out the key points in the interview:
The Pan Asia Gold Exchange is going to send shockwaves through the mechanisms for the price discovery for both gold and silver. It's backed by China's state administration for foreign exchange and also the Chinese security regulatory commision. But the biggest bombshell is the offer of an RMB gold contracts for international investors.

This is concrete evidence that China plans to bring the Remninbi to the world stage. It's going to provide access to a much more physical market and I know it's going to attract a lot of the world's precious metal business, providing much more of the Chinese and the international customers an alternative platform on which they can buy and sell buy and sell physical gold and silver.

Now the first contract is actually going alive this month and its a 10-ounce gold mini-contract for the domestic Chinese retail market, which really until now has been restricted to physical purchases, so this domestic contract should be fully operational this month.

It's going to have a major impact on the demand side of precious metals equation. Especially as there are 320 million customers of Ag bank of China, who are going to be plugged into this exchange platform from the off... If just 1% of their customers bought a single 10-oz contract, that would require new physical demand of 1,000 tons.

Now this is welcome competition. And it should improve price discovery and dilute the effect of short side concentration.

The impact on silver is going to be much more pronounced. We know silver is a much small market and it's already in tight supply. This is the tinder box.


  1. If the Chinese do take the Remninbi to the 'world stage' would that be a method for exporting the inflation that is heating up in their domestic markets? It seems to me that a public (world public, not Chinese public) sale of Chinese bonds backed by Remninbi would help alleviate some of their inflation problems--one would think that Chinese "T-bills" (of sorts) would become a very in demand item.

  2. @Phil M.

    Two things always bothered me about the "China taking the RMB 'public'" story.

    1. I can't help but wonder who is going to be buying those bonds. Who is going to absorb this inflation? The United States? Perhaps Chinese savers are a possibility. and:

    2. Why would the sovereign government need to issue debt instruments to fund itself when its already running budget surpluses and has trillions in foreign reserves. I recognize, however, that the government numbers may be cooked and inaccurate. But it doesn't make sense to me.

    Can anyone shed some light here?

  3. Phil M. asked, "1. I can't help but wonder who is going to be buying those bonds. Who is going to absorb this inflation?"

    From some articles I've read on The Daily Bell some indications are Africa is being setup to do this.

    Think: the same pattern that created China is now being put to Africa.

  4. @anon 10:11

    Following that further, that situation would mean the central banks in Africa would have to make their individual currencies non-convertible and print up its own currency in exchange for each unit of RMB its exporters bring in. Then those RMB would be stockpiled much as our FRNs are stockpiled in Chinese central banks and not spent buying stuff from China.

    Reserve currency and convertibility issues aside, I don't see any African states that will just stock pile RMB when they need/want so much stuff made in China. Since they are not issuing the reserve currency I don't see how the US inflation export model can be immplemented by China. (I understand this is a present view and your perspective is future looking)

  5. Forget the RMB becoming a reserve currency for the moment, bear with me. The purpose of this exchange, in the short term, is to drive up the price of Au and Ag.
    If and when this happens, the Comex is in a world of hurt. As are the major US banks who are short physical silver. It's another tool to help take down the US domination of global markets. If it succeeds then we'll talk about reserve currency status.

  6. Just where will all this physical metal be imported from?

  7. @anon 10:28

    If any of it is imported physically, probably Mexico.

    I think the bigger picture impact of this new exchange will cause prices to be bid up to higher levels than without this exchange. The higher bid will price others out of the market from their delivery.