Gold News

London Gold Rebounds as 'New Imports' Snap China's Price Surge

GOLD PRICES in London in US Dollar terms rallied more than $20 per Troy ounce on Friday, erasing the week's previous 1.4% loss before the spot market rose further to $1930 in US trade as the Yuan price of gold in China – the precious metal's No.1 consumer and central-bank buyer – snapped its 5-day run of new record highs.
"I have heard from one source that the reason for the decline was a relaxation on Chinese import restrictions," says strategist John Reade at the mining industry's World Gold Council, noting that he can't confirm that report but pointing to China's lack of new gold import licenses issued by its central bank – something BullionVault first highlighted 2 months ago.
Amid this week's Yuan gold price surge – and ahead of today's retreat from $120 per ounce to $97 in the premium for gold in Shanghai versus gold in London – the Shanghai Gold Exchange also issued 2 notices telling the warehouses which hold bullion for SGE trading to improve their handling and service times "in accordance with the principle of 'move as much as possible'...
"[You] must not shorten the inbound and outbound service hours without reason," the SGE said, also revising how much warehouses are paid for handling and storing different gold bars or coins – fees which customers pay to the SGE before it pays them onto the custodian companies.
China's gold futures contracts meantime caught up with this week's jump in Shanghai's physical price, peaking at ¥480 per gram on Friday – ¥1 above this morning's new record SGE benchmark and ¥10 above the more closely followed 2.15pm auction – after lagging the bullion market's steep rise.
Chart of SGE benchmark gold price in Yuan per gram vs. Dollar-ounce equivalent premium to London quotes. Source: BullionVault
Gold's No.1 consumer, mining, central-bank buying and importing nation, China bans exports of gold bullion while requiring new imports to be licensed by the People's Bank.
To reduce friction for new inflows, the Shanghai Gold Exchange in 2014 launched an international contract, enabling domestic and foreign banks to hold bullion inside a free-trade zone in China, ready to import it officially when demand required.
Volumes on the SGEI initially jumped to overtake trading in Shanghai's main onshore gold contract, before falling to zero 12 months later as weak domestic demand combined with global gold prices falling to their lowest since 2010, before rising to average around 4% of the comparable domestic contract's volume so far in 2023. 
Today the domestic SGE's main gold contract saw 6.5 tonnes of trading volume, almost unchanged from the week's prior average, with a price peak at ¥480 per gram.
But the international bourse's comparable gold contract saw 1.2 tonnes of trading volume – more than 7 times the week's previous daily levels – with a price peak of ¥470.
Against 2023's daily average to the end of August, today's trading in the onshore Au99.99 contract was 5% greater but the international iAu9999 contract's volume rose 419%.
Together with the previously tight supplies thanks to China's restricted gold import licenses, "The jump in premium [to London was] also due to relatively strong buying amid weak macro-economic sentiment," Bloomberg News quoted a Shanghai analyst late Wednesday.
New data Friday said house prices in China's major cities slipped 0.1% in August, down for the 15th month in the last 16, as major development company Country Garden fought to avoid defaulting on debt repayments.
But retail sales in the world's 2nd largest national economy grew 4.6% per year, the Communist state's official data agency also says, nearly twice the pace of July's 8-month low, while industrial production grew very nearly as fast with its strongest expansion since April.
That data failed to buoy the Chinese stock market, with the SSE index of Shanghai and Shenzhen shares ending the week unchanged after rallying on Beijing's earlier moves to boost the economy while defending the Yuan's FX value – now around 1% above last Friday's fresh 16-year low to the Dollar.
US retail sales and producer-price inflation both came in stronger-than-expected on Thursday, boosting expectations that the Federal Reserve will keep Dollar interest rates higher for longer.
Giant US-listed gold ETF the GLD shrank 0.3% on both Wednesday and Thursday as shareholders sell out of the trust fund, taking its size down to the smallest since mid-January 2020, before the global Covid pandemic began.
Silver's giant SLV ETF also shrank Thursday, heading to reverse last week's small net inflows of investor cash.
Physical silver prices in Shanghai have also leapt this week, running as high as 11% above London bullion quotes, which spiked down to 1-month lows on Thursday before rebounding almost 90 cents per Troy ounce to $23.20 as global Dollar gold quotes jumped.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver, platinum and palladium market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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