Chinese gold prices drop to 2020 levels, erasing record spot premium

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Gold prices in China have dropped to three-year lows due to the government’s decision to increase imports of the precious metal. The price decline is attributed to a fresh round of authorized import quotas issued by Chinese authorities. The move comes after the People’s Bank of China (PBoC) had previously cut quotas and ceased issuing new ones to banks in an attempt to slow down domestic gold purchases. The price premium between the spot price of gold in Shanghai and in London had been steadily increasing since July, partially due to the curb on gold imports. However, the premium narrowed after the central bank relaxed the limits.

Despite the decline in gold prices, many analysts believe that sustained demand from Chinese investors will continue due to the ongoing economic slowdown and other factors like the real estate market crash, rising youth unemployment, and the trade war with the United States. John Reade, chief market strategist at the World Gold Council, states that a “perfect storm” is brewing in China’s gold market, with premiums reaching the highest level in years. China is the biggest gold consumer, importer, refinery, jewelry market, and investment market, so what happens in China’s gold market will have an impact on the broader market.

Gold prices have also fallen globally since the Federal Reserve’s recent interest rate decision. Spot gold reached new session lows, with a 3.7% decline in the week. However, it should be noted that the views expressed in the article are those of the author and do not necessarily reflect those of Kitco Metals Inc.

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