Gold prices return to 3300, Chinese buyers are back
Goldman Sachs stated that during China's night trading session, buying activity on the Shanghai Futures Exchange (SHFE) triggered buying on the New York Mercantile Exchange (COMEX), with the total open interest in gold on the New York Stock Exchange increasing by 3% (and silver by 4%), while the arbitrage space between SHFE and COMEX is also expanding
Gold has risen again, returning above $3,300. On Wednesday, gold stocks in the A-share and H-share markets collectively rose, with Zijin Mining up over 7%, and Western Gold, Hunan Gold, Sichuan Gold, and Chifeng Gold all seeing gains.
In terms of news, according to CCTV News, Israel is considering attacking Iranian nuclear facilities, and geopolitical risk has risen again. More critically, Chinese buyers are returning!
According to Goldman Sachs analyst Adam Gillard, this round of rebound is not coincidental; Chinese buyers have returned to the market. Specifically, during the night trading session in China, buying activity on the Shanghai Futures Exchange (SHFE) triggered buying on the New York Mercantile Exchange (COMEX), with the total open interest in gold on the New York Stock Exchange increasing by 3% (silver increased by 4%), while the arbitrage space between SHFE and COMEX is also expanding.
Gillard noted that what is most impressive is that despite a previous 8% drop in gold prices, domestic holdings in China remain stable at high levels, without triggering a wave of selling among domestic investors.
In May, the open interest on the Shanghai Futures Exchange (SHFE) returned to historical highs, and China's overall gold holdings (ETF + Shanghai Gold Exchange + Shanghai Futures Exchange) also remained at high levels.
Additionally, China's gold imports surged 73% month-on-month in April, reaching the highest level in nearly a year, while platinum imports also hit a one-year high. It is worth mentioning that the high prices at that time did not dampen domestic investors' enthusiasm for buying gold, and the central bank allocated new import quotas to some commercial banks in April to meet investor demand.
This also explains why, despite high gold prices, the premium on the Shanghai Gold Exchange remains strong.
It is noteworthy that the skewness of gold options remains low, around 2.25v (6-month 25% risk reversal), because hedge fund positions outside of China remain lukewarm (as seen from CFTC net speculative positions). The volatility of 6-month 25% out-of-the-money call options is about 19.5%; Gillard believes that considering the positive vanna (sensitivity of volatility to price), if gold prices reach new highs, these options will perform better than the overall volatility curve
