Jim Rickards is a Wall Street insider, prolific author and who garners the respect and attention of many elite financiers around the world.
In a recent article, Mr. Rickards outlined why and how he believes that the price of gold has been pegged by China to the supra-national currency of the International Monetary Fund (“IMF”), the Special Drawing Right (“SDR”). In this article, I intend to build upon this general idea, and provide some additional empirical evidence for the reader's consideration.
On October 1st, 2016, the IMF added the Chinese yuan to the currency basket of the SDR. Since that time, we can see how the price of gold – expressed in SDRs – has traded in a compressing range between 850 and 950 SDRs per ounce. In his article, Mr. Rickards opines that China has pegged the price of gold to 900 SDRs per ounce.
The linear regression slope of gold-priced-in-SDRs from October 2016 to the present day shows a slightly upward sloping line. The volatility of this data has steadily declined. The most recent quarterly volatility of gold priced in SDRs is was 9.8%, which is lower than the volatility of gold priced in U.S. dollars at 10.2%.
Gold Priced In Chinese Yuan
Over the same period, the price of gold has a linear regression midpoint near 271 Chinese yuan per gram. The linear regression midpoint is nearly a flat horizontal line. In addition, the most recent quarterly volatility of gold priced in Yuan is only 7.8%.
Questions to Consider
If China has indeed pegged the value of gold to some currency, is it possible that it has pegged the value to its own currency? The regression line for gold priced in yuan is more flat than the regression line for gold priced in SDRs. And the volatility of gold priced in yuan is lower. Wouldn’t it be easier for China to peg the price gold to its own currency rather than a basket of currencies?
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