Gold’s Pricing Power Moving East – Part 1

How is the gold price made?
When we hear commentary on why the gold price has moved, we usually hear of U. S. economic or political factors and a move in the U. S. Dollar. Most times these do not precipitate the buying of physical gold.
What they do do, is to spur the buying or selling of futures or Options on the COMEX gold market. Many commentators attribute moves in the physical gold price to moves on COMEX.
But this link is tenuous, as COMEX does not [except for a maximum of 5% and minimum of 1% of contracts that disclose they will deal in physical gold, upfront] deal in physical gold.
The dollar gold price is the one that most investors look at, even though they may deal in a different currency to the dollar. This is because the dollar is the key global currency against which all others are measured.
Price differential between Shanghai and London/New York
U. S. gold prices today are primarily driven by demand for physical gold in gold ETFs, such as the Gold Trust and the SPDR gold ETF [GLD].
But the bulk of physical gold traded in the world now happens on the Shanghai gold exchange. There are 10 million investors, including 10,000 institutions that are able to deal over their cell phones at any time on the Shanghai Gold Exchange. Such a market dwarfs both London and New York on the physical front, as all transactions have to be backed by physical gold.

This post was published at GoldSeek on 25 May 2017.