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Gold and Silver Rise as Shanghai Trading Jumps, China's Banks Close Retail Accounts

GOLD and SILVER PRICES raced higher in Asian trade Thursday, hitting 2-week highs in terms of most major currencies as Shanghai trading jumped on a 'no change' decision on Chinese interest rates from the People's Bank in Beijing.
With senior figures calling instead for the PBoC to prepare quantitative easing to stimulate China's ailing economy, the CSI300 share index fell 0.7% to a 2-month low while the Yuan dropped to new 2024 lows on the FX market.
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Neither the UK or Norway's central bank then made any change to interest rates either. But while the Krone rose after the Norges Bank said it's unlikely to cut before 2025, the British Pound fell as financial markets looked to August – after next month's UK General Election – for London to join the European Central Bank in Frankfurt in starting to cut rates.
That saw the price of gold in UK Pounds rise to £1844 per Troy ounce, while the Dollar price also touched 2-week highs at $2345 and Euro gold held firm at €2180.
The People's Bank of China had earlier left its key lending rates unchanged at historic lows, with the 1-year prime rate – the benchmark for most corporate and household loans in the world's 2nd largest economy – staying at 3.45% per year as inflation runs at just 0.3%.
Trading volumes on the Shanghai Gold Exchange jumped by more than 1/5th for the day in gold and over 1/4 in silver as the 'safe haven' rose 0.8% in Yuan terms and the more industrially-useful precious metal leapt by 3.2%.
That extended the Shanghai premium for gold and silver, pushing Dollar-equivalent prices relative to quotes in global trading and storage hub London up to offer the biggest incentive for new imports in 3 and 2 weeks respectively.
Chart of Shanghai gold price and premium vs. London quotes. Source: BullionVault
"China's overall gold demand is consistently strong," says economist Chen Long, co-founder of independent Chinese research consultancy Plenum. 
"The bulk comes from retail consumers in the forms of Chinese jewellery, gold bars and coins [and while] an oft-overlooked big player is the Chinese commercial banks...their gold holdings have declined massively in the past two years."
Noting pressure from the Chinese authorities to dampen speculative trading in foreign currencies as well as gold amid the Yuan's continued decline on the FX market, "The recent reductions [in China's commercial bank bullion holdings] were triggered by cutting commodity-linked derivatives services for retail customers," says Chen.
"[So] a lot of the increase in Chinese retail purchases of gold bars and jewels can probably be explained by the fact that people can no longer buy gold-linked financial products at the banks."
Silver today reached almost £24 per Troy ounce for UK investors after the surge in Chinese trading, while Dollar prices came within 2 cents of $31.50 – also a 2-week high – and Euro silver rose above €28.
Meantime Thursday the Swiss National Bank cut its key interest rate for the 2nd meeting in a row, knocking another 0.25 points off the cost of borrowing in Switzerland and cutting half-a-per-cent from the 15-year high of 1.75% reached last autumn.
Swiss inflation has now more than halved from the 3-decade highs above 3.5% reached in late-2022, coming in at 1.4% per year in May.
Gold priced in the Swiss Franc today rose to CHF 2080 per Troy ounce. The top-end of the past fortnight's trading range, with a floor at 2050, that's 6.6% below the record high set in mid-May.

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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