The Shanghai Gold Exchange (SGE) could indeed become the new world exchange for gold, which could have significant implications for the global financial system and for investors in the German-speaking region.
Reasons for the Growing Importance of the Shanghai Gold Exchange
- Physical Price Determination and Market Size: The SGE is China’s largest precious metals exchange and one of the ten largest in the world. A notable feature is that price formation there is primarily based on physical transactions, i.e., actual demand for physical gold and silver. This distinguishes it from Western markets like London or New York, where paper gold often plays a significant role.
- Strategic Orientation of the BRICS Countries: The BRICS countries are increasingly accumulating gold as part of their strategy to establish an alternative financial system. The aim is to reduce the influence of the US dollar and Western financial centers. China specifically plans to handle contracts at the SGE increasingly in Chinese yuan – a direct attack on the dominance of the US dollar in precious metal pricing.
- International Internationalization: The People’s Bank of China is working together with other government agencies on a comprehensive plan to internationalize the SGE. The goal is to establish this exchange as a central platform for global resource allocation and thus shift the global power struggle for the price determination of precious metals in favor of China.
Current Market Developments
- In China, there is a strong increase in physical demand for gold with a premium of about 20 US dollars per ounce compared to international prices – a sign of high domestic demand despite global uncertainties such as trade conflicts between the USA and China.
- At the same time, a trend towards the physical delivery of gold instead of paper gold (e.g., on COMEX) is emerging in the West, which also underscores the interest in physical ownership.
Implications for Investors in the German-Speaking Region
- A shift towards a gold-backed or yuan-based world currency would challenge the traditional system dominated by dollar, euro, or London prices.
- Investors may increasingly confront different regional prices; for example, prices in Shanghai are often higher than in Western markets due to real physical demand.
- China’s geopolitical weight in precious metals is growing; this can generate volatility but also offer new opportunities – for example, through investments in yuan-based products or by diversifying away from the dollar-centered system.
In summary, the Shanghai Gold Exchange is on the verge of a possible transformation into the central global trading platform for physical gold under Chinese leadership. This is fueled by increasing BRICS gold reserves and political strategies that aim to challenge the existing Western dominance. For investors, this means a potential realignment of the global financial system around the theme of gold.