Record $121 Per Troy Ounce Gap Between Shanghai Spot Price and London’s
China Imported 900 Tonnes of Gold So Far This Year, Highest In Five Years
(USAGOLD – 9/18/2023) Gold and silver both posted modest gains yesterday after the open, with gold up $10 and silver 25 cents on the day. Today, both open flat with gold currently trading at $1,934.40, up 56 cents and silver up 6 cents at $23.30. As we await the Fed’s decision tomorrow, China’s central bank, the People’s Bank of China (PBOC), has lifted temporary curbs on gold imports that were initially imposed in August to support the renminbi (yuan), after gold prices reached record spreads of $121 per troy ounce between the Shanghai Exchange and the London Bullion Market Exchange. The spread subsequently narrowed to $76 after the PBOC relaxed import restrictions on gold. In August, quotas for international gold imports by banks in China were reduced and halted to curb purchases intended to hedge against a weakening domestic currency, but unintentionally caused gold prices within the country to spike dramatically. The renminbi had been in a steady decline against the US dollar, reaching its lowest point in 16 years, prompting the central bank’s measures to try to stabilize the currency.
The lifting of gold import curbs in China is relevant to the US gold market as it underscores the role China has in influencing international bullion prices. The widening spread between Shanghai and London gold prices had largely been attributed to the PBOC restrictions, but also reflects local gold price sensitivity to supply/demand imbalances, especially when paired with already persistent strong domestic demand for gold in China. While the removal of these curbs could prove to be more supportive to global gold prices overall by allowing China’s true gold demands to be met, it is also worth noting that this is another example of how strong gold demand paired with limited supply (government induced in this case) can create distortions in price discovery for the yellow metal in a local economy – an echo of what we’ve seen several times in flight to safety episodes here in the US where the cost to acquire physical gold and silver is distanced from the paper traded price through increased acquisition premiums.
