Golden Star Resources Ltd (GSS)

[capitalkid]

If the a Yuan were truly free floated, there would be no price divergence between the SGE fix and the London fix. As the article notes, that would present an arbitrage opportunity. What the article should have concluded is that this arbitrage opportunity is not simply an internal one limited to foreign import banks participating in the SGE fix, but is an opportunity for anyone.

The SGE fix would simply force the LBMA fix up to parity. If it didn't, then anyone with a brain would buy at the LBMA fix, take delivery, and sell at the higher price on the SGE. Any divergence would be rapidly brought back to parity as the demand for physical delivery in London would cause the price to rise rapidly.

The twist here is that the yuan is not freely convertible. Selling physical on the SGE in exchange for yuan leaves the seller with a currency they may not be able to convert back into dollars due to the capital controls on yuan exchange. Logistically, LBMA buyers may not be able to sell on the SGE because they would have no way to convert their resulting yuan proceeds back into dollars (in quantity).

We shall see what happens. I'm stocking up in popcorn. This is going to be a very interesting show.