A couple of years in the past I used to be invited to talk to a bunch of about 120 Chinese language traders visiting the UK to elucidate how the gold market in London, as the worldwide epicentre, operates – primarily infrastructure. They have been rich, influential and from proper throughout the nation. None of them, it appeared, spoke English, so the presentation was by way of an interpreter.

On the conclusion I used to be met with a stoney silence – a way of antipathy pervaded … maybe hostility. 

Even with minimal expectations, this marked a brand new low.  

I requested the interpreter what was happening and he or she huffed and replied that they simply needed to learn about large leverage in these markets … the monetary equal of a WMD. So we spoke concerning the OTC choices markets and the aid was palpable – the ambiance eased and the temper lightened. My different abiding reminiscence was taking a look at this sizzling, quick and even aggressive group and pondering how incongruent it was with the leisurely ambiance of the gents’s membership ambiance we have been in. 

Level is, Chinese language folks prefer to gamble … on stilts, with a really tall hat. 

And this is the factor … gold is at the moment in hock to Chinese language demand so it pays to grasp what is occurring there as, seemingly as not, it’ll dictate the rapid worth motion … not less than, for some time. 

In my final article HERE I drew consideration to the large shopping for on the Shanghai Futures Trade (SHFE or “Shiffy”) … and I feel I now have a greater understanding what’s at play …  

There’s a psychological phenomenon referred to as “false consensus bias” which is a situation the place we primarily suppose that everybody thinks like we do … however they do not. I feel many people make that mistake. Properly China has it personal cognitive bias in the direction of gold which is at odds with the remainder of the planet… and that view is supported empirically by weak demand elsewhere – at these worth ranges. 

The factor about China just isn’t solely is it massive, additionally it is deeply communed – particularly as regards monetary markets. On MetalsDaily this text I can comfortably predict shall be learn by about 2,500 folks, on Zerohedge possibly 15/20,000 – however in China the WeChat gold teams prolong to effectively above one million contributors (not simply readers) and there are lots of teams. Additional, they’ve a herd-like need to hunt out what’s sizzling. 

Shiffy (let’s get casual now) has a historical past of getting big numbers of CTAs, day merchants and different traders that swamp commodity markets and make large bets. And that is why the buying and selling is on Shiffy and never the SGE … in a phrase – leverage. It’s onerous as somebody from Europe to understand the size and the keenness. We had one thing related within the West which proved immensely highly effective – particularly for these international locations with world ambitions – referred to as exchanges – locations have been merchants met … now nearly all the pieces is silo’ed and digital. Chat rooms do exist however they’re fairly grim and boring.  

Coming to the purpose … the Chinese language are completely conscious that gold is ‘fascinating’- modern even and at many alternative components of the monetary eco-system ; PBoC demand is regular, albeit modest, for conventional gold patrons referred to as dama (or Chinese language grandmothers) the demand may be very robust and they’re joined by millennials and Gen Z new patrons who’re buying gold ‘beans’ – (that is China’s “costco-moment” – fascinating however really not all that important). Chinese language ETF demand is once more small on a world foundation, however rising. So, gold coming onto the radar at Shiffy was inevitable and so they do not do half measures – it was beforehand copper and even soda ash futures (for glass – for buildings) and so they have now thrown themselves at gold.  

We’ve seen this earlier than. 

There was large gold shopping for on Shiffy again in 2019 however then it was buy-and-hold and therefore costs, volumes and open curiosity rose collectively. 

Reducing to the chase, gold is in style in China however solely for as long as it’s fascinating and has momentum for my part. At the moment gold futures volumes on Shiffy are operating at about six-fold the run-rate of the final 5 years. 

I preserve the view that gold is defying gravity simply now (by possibly $100 or so) … however the excellent news is bodily demand in Europe is simply coming in … in dribs and drabs … so a modest correction ought to discover that bodily ground after which gold can re-engage with its conventional bodily patrons.  

Again to China, ever seen movies of a big shoal of fish at sea … all of them appear to show at precisely the identical time – I by no means understood that. So it appears, it’s for markets. 

And I do know what 120 of them are pondering. 


Ross Norman

MetalsDaily.com – London