Gold prices recently hit $3,500 per ounce, driven significantly by Chinese brokers. On this day, three Chinese brokers traded approximately 212,000 CME equivalent contracts, close to the CME's average daily volume of 240,000 contracts for the year. Despite the high trade volume, there was no significant change in their holdings, indicating short-term algorithmic trading activity.
Goldman Sachs FICC trader Adam Gillard highlighted the underestimated impact of Chinese Commodity Trading Advisors (CTAs) from the Shanghai Futures Exchange (SHFE) on CME gold prices. He noted that these short-term trades have a disproportionate effect during Chinese trading hours due to lower offshore market liquidity.
The SHFE to CME trading volume ratio has reached a record high, showing significant Chinese influence on offshore gold prices through SHFE/CME arbitrage. Gillard emphasized that gold, unlike oil or copper, lacks a balance point and is more influenced by Western extraction rates, including central bank activities and Chinese imports.
Additionally, the Shanghai Gold Exchange's physical gold trading volume has reached a ten-year high, with physical gold premiums remaining positive despite high prices. This anomaly may signal early insurance sector involvement in the gold market, warranting close investor attention.
