“China has seen a sudden surge in interest from people who are enthusiastic about investing in gold. The demand for gold bars and coins in China has greatly increased this month, with prices sometimes being more than $100 higher per ounce compared to international rates.
To put it in perspective, over the past ten years, the average premium over international prices has been less than $6. As of Wednesday, an ounce of gold in Shanghai was priced at $2,007, which is roughly 6% higher than the price of gold in London or New York, according to calculations by Bloomberg.
This trend reflects a familiar pattern observed during times of economic uncertainty. When there’s a decline in the value of the yuan, a sluggish real estate market, and strict rules preventing money from leaving the country, investors tend to turn to gold as a safe haven for their money.”
This recent trend is a significant change from earlier in the year. Back then, China’s economic slowdown made people less interested in buying gold as they were holding onto their money due to uncertain economic conditions.
The “Shanghai premium,” which is the extra amount people are willing to pay for gold in Shanghai compared to international prices, began to increase in June.
This happened partly because the People’s Bank of China imposed restrictions on gold imports, possibly to strengthen the value of the yuan by reducing the need for dollars to buy gold. However, the opposite is happening now, as the yuan’s value is dropping, causing investors to seek dollar-based assets to protect their wealth.
Even though import restrictions have been eased, there is still strong demand for gold, according to Suki Cooper, an analyst at Standard Chartered Plc. This demand is likely due to China’s ongoing property crisis, loose monetary policies, and falling bond yields. All of these factors make gold, seen as a safe investment, even more appealing to investors.
In August, the amount of gold taken out of the Shanghai Gold Exchange increased by 40% compared to the previous month, and the imports of gold rose by 15%. At the same time, more money flowed into Chinese exchange-traded funds than at any time since July 2022. China’s central bank is also contributing to this trend by buying gold for the 10th consecutive month as it tries to diversify its reserves.
However, it’s uncertain whether the current high price of gold can sustain this level of demand. People will be closely watching what happens during the Golden Week holiday in early October, as this period usually sees a surge in gold purchases in China.
As for the global price of gold, it remained relatively stable around $1,900 per ounce on Wednesday, after experiencing a slight drop of more than 1% since last week.
