Chinese Paying $100 Premiums For Gold. Mass Withdrawals.

The cost of gold in China in September has been skyrocketing past global spot prices. According to Bloomberg, prices reached a record $100 USD over spot price.

Recently, the currency has been weakening, there has been extreme fear in the property market with a consensus that it is too overheated, and capital controls have come in to try and steer people away from pulling their money out of the troubled banking system. Which country are we talking about? It could be many countries, but in this case, it simply looks like China is leading the way.

The main reason for this astronomical premium on gold in China is most likely government and central bank intervention. The PBC began imposing import restrictions on gold in a likely attempt to strengthen the Yuan. At the same time, the Yuan has been devalued heavily from the PBCs easy-money policies. Investors have seen this and have chased gold to avoid being caught with a devaluing currency and an environment where many other investments are simply sinking. It's clear to Chinese investors that one cannot simply create value by printing money.

Mass Withdrawals

Gold withdrawals from the Shanghai Gold Exchange rose a whopping 40% last month compared to the previous month. This is despite a 15% rise in imported gold and loosened controls. The import controls on gold backfired heavily as they simply compounded the rarity of gold and sent the local prices even higher, thus making it a more attractive purchase.

The PBC itself has been increasing its gold reserves for the last 10 months in a row, which makes their ability to manage the currency and economy look just as desperate as the average investors they are attempting to steer away from gold.

What Might We Learn?

Many Western countries, as noted earlier, are in a similar boat to China: Markets falling, currencies remaining weak (cost of living), and now banks beginning to decide where people can spend their money and how much. If the regulations and a return to stimulus in other countries accelerate towards China's situation, we may also see the price of gold have a strong reaction from raw, consumer-led buying.