Goldman Sachs: The influence of Chinese traders on the global gold price is "underestimated"

The market is paying widespread attention to the suspected central bank activity in the Asian trading session towards gold buying. Few people have noticed that Chinese traders are a major driving force behind the recent record high gold prices. A recent report by Goldman Sachs FICC trader Adam Gillard pointed out that the impact of Chinese commodity trading advisors (CTAs) on the price of gold on the Chicago Mercantile Exchange (CME) has been severely underestimated. Data shows that on April 22nd, when gold prices hit $3,500 per ounce, just three Chinese brokerage firms collectively traded about 212,000 CME equivalent contracts, compared to an average daily trading volume of about 240,000 contracts on CME so far this year. It is worth noting that despite the impressive trading volume, the positions of these institutions have not changed significantly, indicating that this is mainly short-term algorithmic trading behavior. Gillard pointed out that this type of short-term algorithmic trading activity during Chinese trading hours (their most active period) has had a "disproportionate" impact on prices, as this period has low off-shore market liquidity. According to publicly available information, the ratio of trading volume between the Shanghai Futures Exchange (SHFE) and CME has reached a historical high, further proving that the re-balancing of Chinese capital flows through SHFE/CME arbitrage and subsequent impact of Chinese overseas CTAs have had a significant impact on off-shore gold prices. Gillard emphasized that gold is a "flow commodity" because it has no equilibrium point, unlike oil or copper. For the price of gold, what is important is the extraction volume from the Western world (from central banks, Chinese imports (excluding the People's Bank of China), and subsequent investor purchases, among others). It is worth noting that the physical gold trading volume on the Shanghai Gold Exchange (SGE) has reached a ten-year high. More unusually, despite gold prices being at historical highs, the premium for physical gold is still positive, contradicting the usual price-sensitive nature of Chinese buyers. Goldman Sachs traders suggest that this may be an early signal of insurance entering the gold market, and investors should closely monitor the development of this trend. This article is reproduced from "Wall Street View," written by Bu Shuqing; edited by Huang Xiaodong of GMTEight.