#StockMarket #China #Gold ⠀
🇨🇳 Enabling arbitrage: China is short of gold⠀
The unexpected (or maybe deliberately created?) lack of supply in the onshore
China circuit is giving traders the opportunity to look for arbitrage opportunities between the onshore and offshore gold markets. Catch the moment and capitalize!
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Since the opening of SGEI's international division in 2016, the Shanghai Gold Exchange (SGE) has begun pricing gold in RMB and competing with New York and London as a pricing venue.
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Chinese imports of the precious metal have slowed over the past 2 months, reducing supply just where investment opportunities are limited and demand for gold bullion is very high – the domestic market. Gold prices in the onshore circuit are higher than offshore
China - there is a chance for arbitrage trading.
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Net gold imports into China have declined (a fresh high recorded in January), while bullion exports from Hong Kong have also declined. According to the latest customs data, overseas purchases of physical gold totaled "only" 136 tons in April, down 30% from the previous month. This is the weakest figure since the beginning of the year.
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As a result of this imbalance, the Shanghai gold price premium to international prices is actively increasing.
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An investor who buys offshore gold by funding 12-month U.S. dollar currency swaps and sells it through similar forwards will get an annualized return of 2.66%. A similar forward deal with onshore gold could yield more than 1.5%. This does not consider the cost of financing in the Chinese yuan, but it is still quite favorable.
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P.S. For those who trade banal XAU/USD, let us remind you that the pair is trying to recover and is storming the $2375 zone again. However, to get back into the bullish trend, there are still large options in the $2400 zone to overcome.
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Profits to y’all!