Gold News

China Gold Price Sinks from $2000 as Autumn Holidays Begin

CHINA's GOLD PRICE sank Wednesday, dropping the most since July 2022 on signs of profit-taking from this month's run to new all-time highs, with global gold in Dollar terms falling less steeply but testing August's 5-month lows beneath $1900 per Troy ounce.
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With China's financial markets set to shut for 1 week Friday for the mid-autumn festival and National Day holidays, Shanghai gold sank 1.6% into Wednesday afternoon's finish, falling to 3-week lows at ¥466 per gram in Yuan terms and snapping this month's average Chinese gold price equivalent of $2000 per ounce.
That still left the Shanghai Gold Exchange's official price nearly $90 above comparable London quotes, more than 10 times the typical incentive for new bullion imports.
Chart of Shanghai Gold Exchange's PM benchmark price in US Dollars per ounce equivalent, versus London quotes. Source: BullionVault
"We have moved from Evergrande being a debt restructuring story into increasingly a criminal story," says Rebecca Choong Wilkins, reporting for Bloomberg that the debt-laden property giant's billionaire chairman, Hui Ka Yan, is now under 'residential surveillance' by police after executives at Evergrande's wealth management division were arrested last week.
Swiss banking giant UBS says the pace of new property development across China – previously a key driver of domestic economic investment and growth – has sunk to 1/3rd its level of late 2020.
With China's $11 trillion equity markets on track for a 3rd year of losses, the authorities have meantime banned controlling shareholders from selling stock if it's trading below the IPO launch price or below the company's net asset value, echoing moves imposed during the global financial crisis of 2008 and the domestic economic turmoil of the early 1990s.
Chinese gold prices in contrast ended yesterday 21.7% higher from 12 months ago, and "People often have the mentality of chasing the rise and jumping out when price falls," says one research analyst of Chinese investor behavior. 
"Don't blindly follow the trend," urges another financial analyst quoted by National Business Daily.
But "while gold prices are rising, the consumer market is unstoppably hot," said a news report on Henan News Channel yesterday, and with China's domestic wholesale price of gold peaking at ¥475 per gram last week, "The retail price of gold exceeds ¥600...mainly due to hot sales of jewelry," says an analyst at brokerage Everbright Futures.
Today's fall in the Shanghai gold price came as higher margin requirements kicked in – forcing traders to put up more money against their positions, and a move sometimes associated with sharp drops in US Comex precious metals contract prices – ahead of the week-long market shutdown starting Thursday afternoon.
Shanghai's new requirements – announced last Friday in the SGE's annual "Notice on market risk control during the Mid-Autumn Festival and National Day" – raised gold margins for physical bullion from 10% to 13% of the contract's value, a smaller proportionate increase than in 2019 and reaching a lower level than in 2020.
Silver's margin requirements rose less steeply than gold, albeit to 17%, and the Shanghai benchmark price today slipped only 0.8% in Yuan terms, holding a premium to London quotes of more than 8%.
Silver bullion traded in London today dipped through $22.50 per ounce for the first time in 2 weeks, holding above the floor around $22.20 it has held since March.
Prices on the Shanghai Futures Exchange – which kept its margin requirements unchanged as usual going into China's week-long autumn shutdown – meantime fell less steeply than the SGE's benchmark or contract prices for gold but lost slightly more for silver.
Amid the stock-market fall and real-estate slump, "The danger is not one of a huge financial crisis," says Financial Times columnist Martin Wolf of China today, pointing to Beijing's massive state reserves and authoritarian control.
"The danger is rather one of chronically weak demand," created by the household sector's low share of GDP relative to corporations, government and national savings.
Rebalancing "could happen quickly, as with the US in the early 1930s, or slowly, as with Japan in the decades after 1990," agrees Peking economics professor Michael Pettis, noting that to avoid those economic slumps, China must reverse the decades-long trend of wealth transfers from households to government, giving consumers an additional 1.5% of GDP every year.
Over the last decade, Chinese households have spent over 0.3% of the country's GDP on buying gold, despite their share of GDP running at barely 2/3rds the global national average.
Back in China's wholesale bullion market, trading volumes in Shanghai's most active Au99.99 contract today jumped more than 50% from the previous 5 sessions' average, with volume in former No.1 contract the Au(T+D) jumping by 2/3rds.
Shanghai's free-trade zone iAu99.99 contract, in contrast – through which bullion can be landed in China, ready for importing when domestic demand warrants – saw trading volume slump by more than 3/5ths from the prior 5-day average.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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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