Over the last several weeks there has been an increase in the spread between the gold spot price in Shanghai and London. Settlement in China is done with physical metal twice daily. Settlement in London is a paper transaction. The following article goes into much greater detail and clearly indicates that the trend is continuing. This could be interpreted as a supply problem developing in London. The same divergence is taking place between the Comex and Shanghai.
LAWRIE WILLIAMS: Major gold price divergence between Shanghai and London
Few seem to have commented on what appears to be an increasing trend towards large anomalies appearing between the Shanghai and London gold benchmark prices. Up until the beginning of November prices were pretty much in sync give or take a few dollars – a variation based on trading activity during the day, and, in some cases due to a difference between the gold tenor quality required under the two systems. The SGE specification is 99.99% gold content or better, while London works to LBMA Good Delivery specifications where the requirement is only 99.5%. But on one ounce of gold this should only make for a maximum difference in price of around $5-6 at a $1200 gold price.
But recently – as the table below comparing SGE and LBMA (London) PM price benchmarks for the past month makes very obvious the price difference – virtually always in favour of the SGE benchmark since early in the month – has been consistently $10-20 or more (often $20-30) – even rising as high as $46 on November 23rd, although a significant part of this difference on that day was due to the sharp intra-day fall in the London gold price, as will have been the case on November 9th when there was a somewhat similar $45 difference.
SGE and London PM Gold ‘Fixes’ (US$)
|Date||SGE PM Gold Price||London PM Gold Price||Price diffce. SGE PM over London|
|Nov 4th||1300.75||1302.80||– 2.05|
As we pointed out here yesterday a part of the reasoning behind the higher SGE benchmark price levels is something of a squeeze on Chinese gold supply which is local market specific – particularly now that gold traders and fabricators may be looking to build stocks ahead of anticipated additional demand from the Chinese New Year holiday, and a reported reduction in gold import quotas by the Chinese Government to curb capital outflows. But part may also be due to Shanghai looking to establish itself as the true gold price setting exchange and thus usurping the still dominant position of COMEX and the LBMA. As China is the world’s biggest physical gold market, while COMEX and London are largely paper markets, it is probably only a matter of time before this comes to pass but for the moment the Western markets look to still be calling the tune as far as the accepted global gold price is concerned despite some hugely anomalous movements from time to time which many observers put down to manipulation. The latest such was only today when a rise in U.S. jobless claims, which might normally be considered gold positive, saw the price marked down sharply after an initial small rise.