Gold snapped up in China ahead of Lunar New Year holiday - Wealth Managers

Meanwhile, China moving "to open the world's biggest physical bullion market" in Shanghai

China's voracious appetite for gold is one of the biggest drivers for the yellow metal, and recent reports on the trade there reaffirm its role as a key player in the bullion market.

In a Jan. 15 article titled "Chinese holiday demand supports gold rally," The Wall Street Journal reported:
Chinese buyers have been quietly supporting bullion prices through their most recent rally, snapping up gold ahead of theLunar New Year holiday, when the precious metal is given by family and friends as gifts.

The world's biggest gold buyers are showing a willingness to pay more than investors elsewhere to get their hands on the commodity, which is coming off its worst year in decades, with prices having slumped nearly a third, snapping a decadelong bull run.

Trading volume is up in China, and buyers are paying around $15 per troy ounce more for gold than the investors on the international spot market, down from $20 earlier this week but up from around $5 in early December. Chinese were paying a discount to global spot prices as recently as October.
Foreign banks lured to Shanghai
Meanwhile, China is busy building up the biggest physical gold exchange in the world, in Shanghai's free-trade zone, and to do this it is luring foreign investors, Reuters reports:
China has granted licenses to import gold to two foreign banks for the first time, sources said, as moves to open the world's biggest physical bullion market gather pace.

Allowing more banks to import gold could increase the supply of the metal into the country, easing local prices that are higher than in most Asian nations.
China's gold imports more than doubled last year to over 1,000 tonnes -- ousting India as the biggest buyer -- as demand soared to unprecedented levels due to the first drop in international prices in 13 years. ...
The granting of new licenses is the latest in a string of steps by China to ease restrictions on bullion trading and boost market accessibility. ...
"China will need to allow more foreign players into the physical gold market if it's planning to have foreign investors participate on its gold futures," said one of the sources.

"This is the first step that the regulators are taking to ensure that its gold futures contract in the free-trade zone can take off."

The two banks that won licenses reportedly are ANZ andHSBC, and China Everbright Bank also could be under consideration. 
Chinese demand "playing an extremely important role"
Chinese demand could drive up gold prices by 12% this year,Commerzbank analyst Eugen Weinberg told Bloomberg in a Jan. 13 interview:

"What I think is really emerging, and which has not been there for many years before, is the Chinese demand. In fact, Hong Kong, as a transfer hub, as a trading hub to China, is playing an extremely important role as of recently and is likely to be the make or break for this year. ... Should the Chinese demand continue to be around 100 tonnes a month, which we witnessed over the last course of the year, then we a re likely to see a strong recovery in gold prices." 
Ultimate goal: Yuan internationalization
Hand in hand with China's steps to fortify its gold market and accumulate physical bullion at both the state and individual levels are its moves to increase its currency's role on the world stage.

China's Xinhua news agency reported Jan. 11:
China will step up efforts to make its renminbi currency, the yuan, convertible under the capital account this year, the country's forex regulator vowed on Saturday.

The State Administration of Foreign Exchange said in a statement following a forex work meeting that accelerating yuan convertibility is one of the major tasks for forex authorities around the country.

They should also facilitate international trade and investment denominated and settled in yuan, guard against impacts of cross-border capital movement and prevent systemic and regional risks.

At present, the yuan is only convertible under the current account, while its capital account convertibility is controlled by the state.

The government has on many occasions stressed the need to realize full yuan convertibility to help with the currency's internationalization.
Yuan hits 20-year high
Meanwhile, Bloomberg reported on Jan. 14 that "China's yuan advanced to the strongest level in 20 years after the central bank raised the daily reference rate to a record. ThePeople's Bank of China fixed the yuan at 6.0930 per dollar, the highest since it scrapped a peg to the greenback in July 2005. It aims to reduce intervention in the forex market, widen its trading band and increase the currency's flexibility,Caixin online magazine reported today, citing Wang Yu, deputy director-general of the research bureau at the central bank."

"China wants the markets to have a bigger say as part of its reforms, so there's expectation for the yuan to appreciate," ANZ's Irene Cheung told Bloomberg.

As noted gold expert Jim Sinclair has observed: "Each step forward for the Chinese currency is a step backwards for the dollar."

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