China's Gold Infrastructure Challenges Western Dominance

The Chinese government has been quietly building an infrastructure to support gold ownership and trade, diverging from Western practices. In 1949, private gold ownership was restricted in China, but by 1993, this ban was lifted, and a domestic gold market was established with prices aligned to international markets. The Shanghai Gold Exchange was founded in 2002, allowing for free trading of gold.

In contrast to the West, where central banks have historically seized gold from countries they deem unfriendly, China has protected its gold reserves through legislation. In 2005, a law was passed ensuring that government-owned gold cannot be subject to seizure or expropriation. This move is seen as diametrically opposed to Western practices.

The Shanghai Gold Exchange has continued to expand its offerings, introducing market makers in 2018 and becoming the second-largest gold market in the world by 2019. The exchange has also been actively promoting its services, with gold imports into China increasing significantly in recent years. In fact, gold has become a major export for the United States, with six out of eight months seeing significant exports.

China's efforts to establish itself as a global leader in gold trade have taken another step forward with the launch of contracts for gold delivery in Hong Kong. This move aims to make it easier for international participants to engage with the Shanghai market, which can be settled in various currencies including US dollars and euros.