CHINA November 29 2016 10:11 AM
SHANGHAI (Scrap Register): The Shanghai Gold Exchange premium soared to multi-year highs overnight, with Commerzbank citing recent news reports that China’s government may restrict the number of import licenses and MKS (Switzerland) S.A. reporting that dollar weakness also boosted the appeal of gold.
According to MKS, the early-session dollar weakness gave gold a boost right from the open, surging through the Friday high leading into the Shanghai session, before taking a further leg higher courtesy of Chinese interest as the SGE premium continued to trade elevated.
“After opening at an onshore premium of around $22 over loco London gold, interest drove the premium as high as $28 and with it spot gold to $1,197.70, before participants took the opportunity to buy the dollar and cap any further gains,” MKS added.
Last week, Reuters reported that the premium hit a three-year high on worries about a supply shortage tied to Beijing’s efforts to restrict import licenses. According to industry sources, the Chinese government has reduced the number of import licenses,” said analysts at Commerzbank.
According to Thomson Reuters, this drove premiums in China as compared to world market prices to their highest level in nearly three years at the end of last week (roughly $25 per troy ounce).
Premiums could also remain high for the time being given that Chinese gold traders and jewelry manufacturers are likely to require large quantities of gold in the run-up to the Chinese New Year festival at the end of January, Commerzbank added.