In a surprising turn of events, the Shanghai Futures Exchange witnessed an unprecedented surge in gold prices recently, attributed to a perfect storm of factors including the depreciation of the Chinese yuan against the US dollar and the onset of peak season demand.
As of September 15, the price of the most active gold contracts on the Shanghai Futures Exchange has skyrocketed by a staggering 15 percent, reaching an astonishing CNY 480.26 per gram (equivalent to USD 66.24). This meteoric rise significantly outpaced the relatively modest 5.5 percent increase in the US dollar-denominated spot gold prices, primarily influenced by currency exchange dynamics.
Analysts have linked this remarkable price surge to the Chinese yuan’s depreciation, which has seen a sharp decline of approximately 6.1 percent against the resilient US dollar. This depreciation, in turn, has propelled gold prices in China to unprecedented heights, diverging significantly from international markets. The onset of the high-demand season has further amplified this price escalation.
However, it is not all smooth sailing in the world of gold investment. Some analysts have raised caution flags, emphasizing that gold may not be the ideal short-term speculative target.
Global gold demand, encompassing over-the-counter trading and inventory flows, experienced an impressive 7 percent uptick, reaching 1,255 tons in the second quarter compared to the same period the previous year, according to a recent report from the World Gold Council. Notably, central banks worldwide have been on a gold-buying spree, accumulating an impressive 387 tons of the precious metal in the first half of the year, setting a record high.
As for the international gold price, it has recently stabilized around the USD 1,930 per ounce mark. Short-term forecasts suggest that gold prices are likely to oscillate within a defined range, hovering near USD 1,950 per ounce. Swiss investment bank UBS, in particular, anticipates that gold prices tend to ascend before the United States embarks on a monetary policy easing journey.
With the US economy experiencing a marked slowdown and inflation concerns on the horizon, Rob Subbaraman, the head of global macro research at Nomura, has recently conveyed to Yicai that the Federal Reserve is not poised to continue its rate hikes. However, he also hinted that the Fed would maintain relatively elevated interest rates while adopting a “wait-and-see” approach in the near future.
Market expectations indicate that the first interest rate cut by the Fed is unlikely to materialize until after March of the following year.
Taking a more extended perspective, most financial institutions maintain a bullish outlook on gold as a diversified asset. UBS, for instance, predicts that by the end of next June, the gold price may approach a formidable USD 2,100 per ounce. This forecast encourages investors to prepare for a potential bull run in gold prices over the next 12 months.