by Alasdair Macleod, Mises:
The timing of America’s announcement on new tariffs is circumstantially connected with China. In an announcement of enormous importance, a date has finally been set for trading in oil futures denominated in yuan. China’s suppliers of roughly 8.5 million barrels of oil per day are agreeing to take yuan for their oil, not dollars, and the new futures contract allows them to hedge the yuan into dollars, euros, yen, or even gold.
The threat from China’s move is to the petrodollar’s status, and therefore the near-monopoly the dollar enjoys in international trade. It also allows oil suppliers to hedge into gold through matching yuan-gold futures in Hong Kong and Dubai, which are physically deliverable. These two exchanges, in consultation with Singapore and others in Asia, are setting up a gold corridor with vaulting facilities with a 1500-ton capacity in a free-trade zone in Qianhai on the Chinese mainland. This move is almost certainly connected with anticipated physical demand for gold arising from the new oil futures contract.