Gold prices in China plummeted to their lowest level in three years due to the government’s decision to increase imports of the precious metal. The Shanghai Gold Exchange saw a 3.8% drop in gold prices, almost eliminating the record high price premium that had been present in September. The decline in prices is attributed to fresh import quotas issued by Chinese authorities and low levels of liquidity ahead of major holidays in China. Despite the drop in prices, analysts believe that sustained demand from Chinese investors will continue, as the country is the largest consumer, importer, and investor in gold.
The spread between the spot price of gold in Shanghai and London had been steadily widening since July, partly due to restrictions on gold imports. However, on September 14th, the gap hit a record of $121 per ounce, which then narrowed after the central bank informally relaxed the limits. Nevertheless, the premium started to climb again shortly after. With the worsening state of the Chinese real estate market, rising youth unemployment, and an ongoing trade war with the US, analysts predict that Chinese investors will continue to drive demand for gold. John Reade, chief market strategist at the World Gold Council, says that a perfect storm is brewing in China’s gold market, with domestic premiums having an impact on the global market.
Gold prices have also fallen globally following the Federal Reserve’s recent interest rate decision. Spot gold hit new session lows, down 0.60% on the day and 3.7% on the week. It is important to note that the views expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc.