China Just Popped the Lid off Gold Prices

Written by Jason Simpkins
Posted September 22, 2023

Gold has been a sneaky-strong investment for a while now. 

It’s up more than 15.4% in the past year and 61% over the past five. 

That’s a near-identical return to stocks over the past 12 months, as the S&P 500 is up 15.4% in that time. 

However, the benchmark index has lagged behind gold over the past five years, with just a 49% return over that period.

There are a lot of reasons for this. 

Inflation, safe-haven buying, the collapse of the crypto market…

That’s just to name a few.

And this week, China threw another log on the fire when Beijing lifted its temporary curbs on gold imports. 

You see, China’s got some problems. 

Once lauded for its double-digit growth rates and hailed as a “miracle,” China’s economy has been flagging for the past decade.

China GDP 40 Year

It expanded a scant 3% last year and is expected to grow just 5% this year.

And that's if the country avoids an economic crisis. 

Indeed, flashing red warning signs abound in the country, from the decline in its real estate sector to the financial health of its debt-laden local governments.

The exports China long-leveraged for growth have slowed, too. They’ve declined for three straight months now, with a standout 14.5% drop in July.

Naturally, amid this malaise, the value of China’s currency, the yuan, is steadily eroding. 

In fact, it’s fallen to a 16-year low — touching 7.35 against the dollar.

So, in an effort to bolster its currency by impeding the rush to buy gold to hedge against the weakening yuan, China stopped granting quotas for international gold imports by banks.

However, those restrictions were lifted last Friday, opening the door back up to gold purchases.

Obviously that distorted the market, causing local gold prices to surge far above gold’s global benchmark price.

Indeed, the fact that gold prices in Shanghai were at one point $120 per ounce higher than they were in London (a record high for that spread) shows just how willing Chinese buyers were to pay a premium for the yellow metal.

The demand is clearly there.

In fact, even with the ban, China has imported about 900 metric tons of gold this year, which is the highest in five years.

Additionally, gold demand in China is expected to surge even higher as we approach numerous holidays including the Mid-Autumn Festival, the National Day of the People’s Republic, and Golden Week, which is the first week of October and the country’s traditional wedding season. 

So basically, gold demand in China was already high and now it’s set to surge even higher on seasonal factors. 

And now that Beijing has taken the curbs off imports, we’re seeing a return to equilibrium between gold prices in China and gold prices in London and New York.

Shanghai London Gold Price Spread

That means the local price for gold in China is falling as imports improve domestic supply, but global markets will see gold prices rise as China sucks up more of the world’s supply.

That’s the short-term picture.

Long term, gold prices will continue to rise because global supply is simply drying up. 

Gold production has peaked and has actually been in decline since 2019.

JMT Gold Mine Production Worldwide Bar Chart

Effectively, all the low-hanging fruit — the massive jumbo deposits — has already been discovered and exploited.

Thus, the trajectory of gold over the next few years and decades is decidedly positive.

So if you want to take advantage, you should check out the latest report from The Outsider Club’s resident resource expert, Luke Burgess.

He’s got all the details on a gold play that’s poised to deliver massive gains to timely investors.

But you’ll have to act fast, because it’s set to go vertical as soon as September 30.

Trust me, you don’t want to miss out.

Fight on,

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Jason Simpkins

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Jason Simpkins is an Editor of Wealth Daily and Investment Director of Secret Stock Files, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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