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Woodchuck
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Just wondering what the PM investors think. Is this just a rumor and what impacts might it have here for PM's? With the rumprs of only 10% actual metal to contracts this would be a good thing for small holders of actual PM's like myself.

"Their opening salvo will be fired in October when the Pan Asian Metals Exchange allows international investors to buy into a 90 day rolling spot gold contract which is for allocated gold. They already have a ten ounce mini-gold contract and a similar silver contract. The investor will have the choice of either take delivery of their gold or be paid in Chinese Renminbi. Major European and North American brokerages will allow investors worldwide to invest in the Pan Asian Metals Exchange.
Six major Chinese banks will fix the gold price every morning at 8am their time. "

China Declared War On Wall Street And The City Of London | Video Rebel's Blog
 

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I don't even know if the Pan Asian Metals Exchange exists. If you search for it on Google all you come up with are blog entries. There's no entry for it on Wikipedia either. If it does exist it's in additional to the markets the Chinese already have.
 

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Ummm.... I dont know.

Taken at face value, it looks to me like this organization is just trying to compete with the London Exchange and COMEX.

I'm not sure I agree with the assumption that this would drive up the prices.

If we assume that the prices are fixed by the paper contracts and not the actual physical allocation, then (again following his assumption) the market shifts to this Chinese instrument, that means all of those paper contracts would be sold off. This would cause a huge selloff if 90% of the trading is done with paper assets, no?

I think hes making some big assumptions here.
How is this Chinese thing that different from a paper contract? If you dont take delivery, whats to prevent it from being used in the same way using derivatives?
If people scrambled to switch their investment (a stretch I will address next) this would cause a huge selloff and a corresponding drop in price. Huge drop. If 90% of the trading is paper and not physical, and all the paper trades disappeared, and thats how the price is set now, then how much would it fall?
How is this exchange setting the price? Based on what? If the price is set by the paper trades, are they going to extrapolate that supposed demand out, and therefore the price would be higher? ???
The stretch I was referring to above is that this guy is assuming that everyone (or most?) of these paper assets are being held for a physical investment. I can only assume that is totally incorrect. I would assume that the paper trades are held for just that, trades. Not investment. Whos to say that if the paper trading dried up that the demand would be taken up by people wanting a physical holding? Couldnt it be possible that if the paper trades dried up, that these traders would just move on to another commodity? Pork bellies?

Too many variables. He is seeing what he wants to see, a rise in the price and the freeing up of the physical commodity and the end of the paper trades. I dont think his assumption of a rise in price is totally true. Its certainly possible, but not a given. As a contrarian, I could see it going in the opposite direction.
I am also somewhat sceptical of traders/investors being totally comfortable with dealing with a Chinese exchange instead of London/NY.
Lets say I have a ton of physical gold in London. Kegger at my place! Would it make any sense for me to transfer it to China? Probably not for an American, but we are but a small percentage of the world, which is something thats lost on most of the US. If you are Indian, Russian, Chinese, I see this would make sense, but maybe not to us and the Europeans.

In summary: I have no idea the effect this could have but I'm a little sceptical about his assumtions.
 

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More demand means prices go up. And there are a lot of Chinese :beercheer:

Also they are doing 1:1 physical to paper, which people are saying means cautious investors will pay a premium for the added safety.

Also China is historically fond of precious metals, even though they started the paper currency craze. Interesting history of money from the book Fiat Paper Money: The History and Evolution of Our Currency.

Richard Poulden talks with James Turk
 
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