Chinese Government Leads Crackdown on Gold Exchanges

Governments hate competition; totalitarian governments even more so. Due to record-breaking gold prices this year, hundreds of  "unauthorized" gold exchanges occurred in China to capitalize on gold fever. However, China regulators are not happy about the competition.

“No local authority, institution or individual is allowed to set up gold exchanges,” the People’s Bank of China (PBOC), the Ministry of Public Security and other regulators recently announced in a joint statement.

In essence, gold exchanges in China, except for two in Shanghai are to be banned. The joint statement also explained that the Shanghai Gold Exchange and the Shanghai Futures Exchange are sufficient to meet domestic investor demand for spot gold and futures trading.

However, an official at the Beijing Gold Exchange Center told Reuters reporters that the exchange has not received any detailed instructions.

"But the talk of a crackdown has been going on for a while," he said. "Of course, this affects our business."

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Reuters explains:

The PBOC cited lax management, irregular activities and evidence of illegality which were causing risks to emerge, as the reasons for taking the decision.  The central bank said it would lead a team to clear up the mess — gold exchanges will be altered or closed, banks will stop providing clearing services to them; and some people will be put under police investigation.

The move serves as a reminder to precious metal investors that gold and silver remain to be a focus in a world of fiat currencies. In addition to tighter gold exchange oversight, China is making agreements to distance itself from the U.S. dollar.

“Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for the exchange, to cut costs for companies," Bloomberg reported earlier this week.  "Japan will also apply to buy Chinese bonds next year, the Japanese government said in a statement.”

[Editor's note: portions of this article originally appeared on Wall St. Cheat Sheet.]