Gold prices in China hit a three-year low after the government increased the import of the precious metal. The price drop was attributed to a fresh round of authorized import quotas by Chinese authorities and low levels of liquidity ahead of major holidays in China. In August, the People’s Bank of China (PBoC) had cut existing quotas and stopped issuing new quotas to banks for the importation of international gold to slow down gold purchases as the renminbi fell to its lowest level against the dollar in 16 years. Despite the slump, many analysts expect sustained demand from Chinese investors due to factors like the freefall in the real estate market and the ongoing trade war with the United States.
China is the largest gold consumer, importer, refinery, and jewelry market, and has the potential to grow further. The high domestic premiums in China are also expected to impact the broader gold market. The premium on the Shanghai Gold Exchange (SGE) vs. Comex futures hit its highest level on record, indicating an unusual situation in the Chinese gold market. The fall in gold prices in China is part of a global trend following the Federal Reserve’s recent interest rate decision. Spot gold prices around the world have fallen sharply, reaching new lows since September 20.
In summary, increased gold imports in China have caused gold prices to hit three-year lows. The decline in prices is attributed to authorized import quotas and low liquidity. Despite the fall, sustained demand from Chinese investors is expected due to various economic factors. The high domestic premiums in China are also likely to impact the broader gold market, highlighting the significance of China as the largest gold consumer and importer.