Making sense of Chinese gold demand
By GCRU Gold News on Monday, October 13 2014, 11:52 - Permalink
All these factors might be seen as positive for gold, and all things being equal would probably lead to a sharp rise in the gold price in the months ahead. But then all things are not equal. The western commodity markets are hugely distorted by the big money playing the futures market with amounts of paper gold enormously in excess of physical gold availability perhaps by as much as a factor of 100 or more. Should market participants start demanding settlement in physical gold there would be a massive increase in gold price and undoubtedly some of the big short position holders would be bankrupted. But, unfortunately for the pro-gold sector, this seems very unlikely to happen.
However there has also been a move in the East to set up new international commodity exchanges which will deal only in physical metal – notably in Shanghai with the international arm of the Shanghai Gold Exchange (SGEI) located in the Shanghai Free Trade Zone, and in Singapore with the Singapore Precious Metals Exchange (SGPMX). There are also reports that CME Group will launch a physically deliverable contract in Hong Kong later this year and in the Middle East, Dubai is said to be preparing to launch a physical contract too. The effect of these new trading options will be limited initially, but as they gain traction and physical gold continues to move from West to East, which shows no signs of coming to an end, then there could be some dramatic gold price moves ahead in the medium to long term.