Gold News

Shanghai Gold Price Hits Another Record as Beijing Warns Against Dumping Stocks

SHANGHAI GOLD prices jumped to yet another all-time high on Thursday, raising the precious metal's cost in its No.1 consumer market to a record premium of $120 per Troy ounce above London quotes as China's central bank eased monetary policy once more in a bid to reverse the country's economic slowdown.
"Blindly copying foreign-capital flows is not a good investment strategy" says an article today in the communist state's Economic Daily, warning domestic investors against fleeing the Chinese equity market – down again Thursday to within 1% of August's 9-month low on the CSI 300 index – as foreign investors continue to sell stocks after pulling out a record $12.5 billion last month.
The People's Bank on Monday warned FX traders from "disturbing" the currency market by "conducting speculative trades" – comments which saw the Yuan rally from last week's new 16-year lows but without stemming Shanghai gold's run of new record high prices.
With spot gold in London dropping towards $1900 per ounce today – the global trading and storage hub's lowest Dollar quote in 3 weeks – the PM benchmark auction at the Shanghai Gold Exchange had earlier fixed at ¥474.58 per gram, the 5th new record high in a row and equal to $2029 per ounce.
Showing a median gap above London quotes of 0.3% across the 4 years to end-June 2023, the Shanghai premium has averaged 1.9% since the start of July and reached a record 6.3% today.
Chart of Shanghai Gold Exchange's PM Fix, US Dollar equivalent price, versus London spot-market quotes. Source: BullionVault
"Volumes are ok but not great on SGE," says bullion market strategist John Reade, now at the mining industry's World Gold Council.
"So there is evidently a shortage of metal to buy, which probably means that [bullion] imports are being restricted. But the enthusiasm of the buyers, prepared to pay so much for gold, has really surprised me.
"I've never seen moves like this, and I've been tracking the Shanghai Gold Exchange since it started."
The gold market's No.1 mining producer, household consumer, central-bank buyer and net importer, China began restricting new gold import licences in July – repeating action it took to stem outflows of foreign currency in late-2016 when the Yuan also fell hard on the foreign exchange market – after the CNY hit its lowest since 2007 against the Dollar yet failed to boost the country's trade surplus.
Gold trading volumes on the Shanghai Gold Exchange grew 6.0% year-over-year in January to August, data from the China Gold Association said this week, while trading in gold derivatives contracts on the Shanghai Futures Exchange leapt by 37.0%.
But Thursday's action saw the SHFE's most active gold product – the December 2023 futures contract – peak at less than ¥472 per gram, more than ¥2 below the price achieved for physical bullion at the SGE's afternoon benchmark auction.
With analysts cutting their growth forecasts for the world's 2nd largest economy to 5.0% on average for 2023 – the weakest since 1990 outside of 2020's Covid Crisis – "[the] slowdown in the property sector and exports, [plus] US-China trade tensions, and the recent diversification of supply chains beyond China will add to the downside pressure," says senior economist Bingnan Ye at Hong Kong finance house China Merchants Bank International.
"Weaker net external demand will continue to be a problem for China's economy," agrees Peking University professor Michael Pettis. "But while the trade surplus may have declined in recent months, it is still extraordinarily high, equal to 5.5% of [2023 to date] GDP, or about 1.2% of the GDP of the rest of the world."
Today the People's Bank in Beijing reduced the percentage of depositors' cash which commercial lenders need to hold back, the 3rd such cut of the last 12 months, taking the required reserves ratio down to its lowest since 2007 and extending the run of monetary stimulus measures which saw Shanghai gold begin this run of new all-time highs in mid-July.
Ahead of key economic data for August, the move will "consolidate the foundation of economic recovery and keep liquidity ample," the PBoC said in a brief statement. 
Chinese data on Monday surprised analysts by showing a surge in commercial bank lending for August, led by mortgage loans and indicating that "rate cuts and policy easing in the property sector [have] helped to boost buyers' sentiment" according to one economist, despite the continued debt distress, plunging sales and stalled construction projects among real-estate developers.
The European Central Bank in contrast raised its key interest rates Thursday, taking the deposit rate – which it held below zero until June last year – to a currency-union record of 4.0% per annum, ignoring weak data from No.1 regional economy Germany in favor of "reinforc[ing] progress" on cutting inflation across the 20-nation zone.
With new US data showing a smaller-than-expected rise in new jobless benefit claims for last week, plus stronger-than-forecast retail sales for August, that saw the Euro drop on the FX market, boosting the EUR gold price to €1782 per ounce as it fell near $1900.
The UK gold price in Pounds per ounce meantime held around £1530 after touching a new 2-week low £5 cheaper overnight.
Silver also held firmer in non-Dollar currencies but sank to 4-week lows for US traders and investors beneath $22.50 per ounce.

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals