Arbitrage trading surges, Shanghai gold inventory hits all-time high

Shanghai's gold inventory has reached a historic high, and the arbitrage opportunities brought about by the price difference between futures and spot markets are attracting a large influx of funds.

On August 6, it was reported that the gold inventory in relevant warehouses of the Shanghai Futures Exchange has surged to a historic high, with over 36 tons of gold bars registered for futures contract delivery, a quantity that has nearly doubled in the past month.

The report pointed out that the inventory surge is mainly driven by a wave of arbitrage trading fueled by strong futures demand, with futures prices significantly premium to physical gold.

Currently, traders and banks are seizing this price difference opportunity by purchasing relatively cheap gold in the spot market and delivering it to exchange warehouses to hedge futures short positions and profit from closing positions.

Arbitrage Mechanism Drives Inventory Surge

The disconnection between futures and spot market prices creates favorable conditions for arbitrage trading.

John Reade, senior market strategist at the World Gold Council, stated that a large number of investors have flooded into the futures market, pushing futures prices significantly beyond physical gold prices, providing arbitrage opportunities for other market participants.

Traders effectively utilize this price difference by purchasing gold in the spot market and delivering it to exchange warehouses. This delivery and subsequent hedging of futures positions have resulted in over 36 tons of gold bars being registered, setting a historic record.

It is reported that the arbitrage strategy of traders is relatively simple: purchase gold at a relatively low price in the spot market, deliver it to exchange warehouses, and then use this physical gold to hedge short positions in futures contracts, thereby profiting from the futures-spot price difference.

It is worth noting that earlier this year, expectations of U.S. tariffs had driven a large influx of metals into the New York Comex warehouses, but this trading abruptly stopped when the Trump administration announced exemptions for precious metal tariffs.

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