Oct 10, 2022
VOT Research Desk
Key News – Insights and Analysis
The Market Perspective:
The gold market is experiencing a global shift as Western investors sell their bullion and Asian buyers take advantage of the falling price to buy cheap jewelry and bars.
The East is getting cheap with gold. The gold market is undergoing a global migration as Western investors sell their bullion and Asian buyers take advantage of the falling price to buy cheap jewelry and bars.
In fact, it is unable to move quickly enough.
It is becoming increasingly difficult for traders to obtain sufficient bullion in the desired locations due to logistical issues and market peculiarities. Consequently, in some Asian markets, gold and silver are selling at unusually high premiums to the global benchmark price.
The incentive to hold gold is significantly reduced. According to Joseph Stefans, head of trading at MKS PAMP SA, a gold refining and trading company, “it’s going from west to east now.”We are doing our best to keep up.
A gold-market cycle that has been going on for decades includes the metal’s global rotation :When investors withdraw and prices fall, Asian buying picks up and precious metals flow east, putting a floor on the price of gold when things are weak.
Then, when gold eventually rises once more, a lot of it goes back to bank vaults beneath the New York, London, and Zurich streets.
Gold prices have fallen 18% since their March peak as a result of financial investors’ mass liquidation as a result of the Federal Reserve’s aggressive rate hikes.
More than 527 tons of gold have been removed from the New York and London vaults that underpin the two biggest Western markets since the end of April, according to data from the CME Group Inc. together with the London Bullion Market Association in check.
At the same time, shipments are increasing into major Asian gold consumers like China, whose imports reached their highest level in four years in August.
Even though there is a lot of gold moving east, there is still not enough to meet demand. According to MKS PAMP, gold has recently traded at multi-year premiums to the London benchmark in Dubai, Istanbul, and the Shanghai Gold Exchange, indicating that imports are outpacing buying.
According to Philip Klapwijk, managing director of Precious Metals Insights Ltd., a Hong Kong-based consultant, “Demand typically picks up when prices fall.” “Buyers want to source metal at the lower price and in the local physical market in question there may not be sufficient metal available when the price falls, so the local premium increases.”
According to Thailand’s Gold Traders Association president Jitti Tangsithpakdi, Thailand’s gold is also trading at a premium to London prices due to a lack of supply and weak local currency.
Silver is seeing significant premiums in India. According to Metals Focus Ltd., a consulting firm, the difference has recently increased to $1, more than three times the usual level.
Analysts claim that CME Group’s vaults, which back the New York-based Comex futures market, are the primary source of the precious metals that satisfy Asia’s demand.
Banks were compelled to build substantial stockpiles to cover their futures positions as a result of massive price increases caused by early pandemic market dislocations. Gold has been trading at a discount to London over the past few months on the Comex, and those stocks are now being reduced to meet Asian demand.
However, due to Asian buyers’ preference for one-kilogram bars over larger ones, progress can be sluggish. Physical traders must take delivery of multiple Comex gold futures, which are frequently backed by bullion in various warehouses, in order to fill a standard 25 kg shipment box.
The traders claim that the high Asian premiums are also caused by additional logistical difficulties.
