When Hong Kong Exchanges and Clearing (HKEX) bought the London Metals Exchange (LME) in 2012 all the speculation about the effects on gold trading. The primary reason for buying the LME was to obtain its warehouses and ensure a free flow of metals to points east.
What it also did was give them control over what type and kind of futures contracts could be traded on their exchanges. No longer would the west control this very important part of the precious and industrial metal supply chain.
Now we’re seeing the next evolution of the power of owning the exchange. After successfully launching a yuan-denominated gold futures contract last year, the LME is now preparing to issue a range of yuan-denominated metals futures.
In other words… Boom.
First Rule: Do No Harm
When China bought the LME the usual suspects in the contrarian investing community talked about the coming apocalypse for the bullion banks. It never happened. In fact, China was in a position to help them cap the price of gold and extend the gold bear market for the past six years while it and its strategic partners, namely Russia, accumulated vast quantities of the world’s most important metal.
The Chinese were smart. Take over the LME and, for a while, change nothing. Don’t upset the apple cart and allow markets to operate mostly normally. Now their ownership of the LME is not an issue.
Until now. First gold trading in Yuan. Now the rest of the metals.
We’ve all been breathlessly focused on how strong the so-called ‘petroyuan’ oil futures contract has been for the Shanghai Exchange. It has captured more than 12% of the total oil futures market in just under two months. That’s incredible.
It tells us there was substantial demand for this product because many in the world were tired of being exposed to U.S. dollar currency risk to buy oil. Now that business is gone.
Moreover, the more successful the contract becomes the more belligerent the foreign policy rhetoric from the Trump administration on trade and sanctions becomes.
Read the rest of the article on Tom Luongo’s blog: Petroyuan Is Only the Beginning, Pop Goes the Metals Market | Tom Luongo