Bank of China Joins Auction Setting Gold Prices in London

While China is the world’s largest bullion buyer, it has never directly played a role in determining London gold prices.

China is increasing its influence in gold and currency markets worldwide as the country seeks to make the yuan a viable competitor to the dollar. The country saw a surge in commodities-derivative trading last year and policy makers are making a case to add the yuan to the International Monetary Fund’s basket of reserve currencies.

“They want to be on the top table in all areas of international trade and this is no different,” Ross Norman, chief executive officer of dealer Sharps Pixley Ltd., said by phone from London. “They want to be represented in locations where benchmark prices are derived, and they have demonstrated that by signing up for the fix.”

Gold Auction

The gold auction started earlier this year as a more transparent alternative to a previous process in which banks talked by phone. London is the world’s largest market for over-the-counter gold trading with an average of $20.2 billion in the metal changing hands each day in April, clearing data from the LBMA show.

Gold slid 0.3 percent to $1,183.49 an ounce as of 1:32 p.m. in London, according to Bloomberg generic pricing.

Participation in the gold auction will increase the link between China and international markets, and make the gold price better reflect the nation’s supply and demand, Yu Sun, general manager of the Bank of China’s London branch, wrote in a press release.

Efforts to make the yuan an international currency have fueled speculation the government is stockpiling gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves.