Daily Markets: In a move that provides a glimpse of the future of US dollar and gold, China has allowed its currency to be traded for the first time in the United States. This is a bullish sign for gold investors. It is an important step in the country’s plan to make the renminbi an international currency. The explicit move is an endorsement by Beijing since the state-controlled Bank of China Ltd is at the forefront of this development.Although a floating currency allows price moves in both directions, it is general consensus that the renminbi will strengthen against the US dollar due to trade imbalances between the two countries. The impact on commodity markets, including gold, will depend on the extent and speed to which China allows its currency to rise.
The impact of a free floating yuan will affect commodities in three angles: economic strength and prospects of global recovery, direct impact on trade of commodities to and fro China, and the broader knock-on effect on commodity demand.
Bank of China Expectations
According to Li Xiaoping, the general manager of Bank of China’s New York brand, “we’re preparing for the day when renminbi becomes fully convertible.” He added that the bank’s goal is to become the “renminbi clearing center” in the United States. Right now, the yuan is still tightly controlled by the government. Until the middle part of last year, the buying and selling was confined to China and was under tight capital controls. It was in July last year that the government allowed the currency to be traded in Hong Kong. Its volume has since ballooned to $400 million from a base of zero. Read more at Daily Markets.….