The huge bets by Chinese speculators on the increase in prices ofgold have helped power the precious metal’s rally to an all-time high this month, in what is a sign that Asian traders are starting to eclipse their Western counterparts in their influence on the gold market. Gold positions held by futures traders on the Shanghai Futures Exchange (SHFE) rose to 295,233 contracts, equivalent to 295 tonnes of gold. This marks a increase of almost 50% since the end of September, before geopolitical tensions erupted in the Middle East. According to Bloomberg data dating back to 2015, a record bullish position of 324,857 contracts was achieved earlier this month.
One trading firm, Zhongcai Futures, has amassed a bullish position in SHFE gold futures amounting to just over 50 tons of the metal – worth nearly $4 billion and equivalent to more than 2% of the country’s bullion reserves. Central Bank of China.
Gold volumes on SHFE increased more than fivefold from last year’s average of 1.3 million lots on last week’s peak trading day, a frenzy that analysts say helps explain the ferocity of the rally from gold record which exceeded 2,400 dollars per troy ounce this month.
“Chinese speculators have really grabbed gold by the throat,” said John Reade, chief market strategist at the World Gold Council, an industry body. “Emerging markets have been the largest end consumers for decades, but have been unable to exert pricing power due to fast money in the West. We are now getting to the stage where speculative money in emerging markets can exert pricing power.”
Gold rallied more than 40% from November 2022, supported by record bullion purchases by emerging market central banks seeking to diversify their reserves away from the US dollar.
The metal, often used as a hedge against inflation and currency depreciation, has been further strengthened by its safe haven status since the outbreak of the Israel-Gaza conflict in October, reaching an all-time high of $2,431 per troy ounce last week.
The scale of the rally has surprised many analysts, who point out that the increase is at odds with outflows from U.S. and European exchange-traded funds. Some, however, point to activity on the SHFE and the Shanghai Gold Exchange – where trading volumes on a key contract doubled in March and April compared to last year – as a big driver of the rally, as Chinese investors look to diversify from their crisis-weakened real estate sector and falling stock market.
Zhongcai, founded three decades ago by Bian Ximing as a PVC pipe maker before expanding into futures trading, is the principal of a group of Chinese trading firms whose big bets have been linked to gold’s rapid rise.
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