In recent months, we have seen major shifts in the global gold market. Due to the strong dollar, demand for investment products such as gold ETFs in the United States and Europe is falling, while interest in the precious metal in Asia has increased sharply. Where does this turn come from and what does it mean for the gold market?

In China, total imports of gold rose to the highest level in four years in August, driven by catch-up demand after the corona pandemic. Due to the strong dollar, the price of gold is under pressure, which is an additional reason for the price-conscious consumer in China to buy gold. Domestic demand again exceeded supply in September, as the price of gold in Shanghai at that time was well over $43 per troy ounce higher than the Gold Rate in London. Since 2016, that premium has not been as large.

The reason for this high premium in China is that banks are only allowed to import a limited amount of gold. The central bank sets the quotas and banks must adhere to them. If the demand for gold in the Chinese market suddenly increases, then in case of scarcity this translates into higher premiums. Demand usually picks up when the price goes down. This premium may fall again in the near future, if the central bank increases the import quotas.

The demand for precious metals is not only increasing in China, the market is also recovering in India. The fourth quarter is traditionally a strong quarter for the Indian gold market, as many festivals are held during this period. They often give each other gifts of gold. The World Gold Council expects more demand for gold and silver from India in the coming months. In Thailand, too, traders are currently paying a premium over the price of gold in London.

Gold shifts from west to East

China and India are by far the largest markets for physical gold. Traditionally, this market often moves in the opposite direction to the Western gold market. If the price of gold rises, many Western investors take positions in gold contracts and investment products such as gold ETFs. this happened just after the corona crisis, when the price of gold rose and the gold accumulated in the vaults of London, Switzerland and New York.

Now that the price in dollars is falling a bit, we see an opposite movement. Many investors sell positions, freeing up more gold for other countries. The precious metal then shifts towards markets such as China and India. Statistics from the CME Group and the London Bullion Market Association (LBMA) show that more than 527 tons of gold have been removed from gold vaults in New York and London since the end of april this year, according to Bloomberg.

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