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Less than 20 years after launching the Shanghai Gold Exchange has become the world’s largest physical gold exchange. This trend is set to continue with two new futures contracts connecting CME Group gold futures to Shanghai Gold Exchange having launched in October.

SGE Gold Exchange

China is now home to the third largest gold trading market, just behind New York and London, The Shanghai Gold Exchange (SGE) was founded in 2002 by the People’s Bank of China (PBoC), the nation’s central bank. In that time the SGE has become the world’s largest physical gold exchange. In line with China’s cantralized government the SGE was created to be the only official platform for gold in the country.

All Chinese gold imports, domestically mined gold and recycled gold trade through the exchange. China is the world’s largest gold producer mining 11 percent of the world’s gold. China also accounts for 30.6 percent of worldwide demand. China is the global leader in using gold in jewelry fabrication.

Chinese gold prices follow the prices discovered in both the COMEX gold futures market and the London bullion market, although local supply and demand factors also influence prices.

Chinese gold prices often have a premium to attract gold to the country. The Chinese government has also implemented no VAT (value-added tax) on gold purchases, unless a profit is made, Silver has a 13 percent VAT which is price inclusive. It is also adding more gold contracts including Shanghai Gold. The World Gold Council said in a 2018 report about the development of China’s gold markets, that the Asian nation’s financial sector is enjoying more liberal policy measures, and as the renminbi gains traction, more overseas investors are taking interest.

“It is on course to become one of the richest countries with one of the largest populations,” the WGC said in its report.

Chinese investors bought 308 metric tons of physical gold, or 28.6 percent of worldwide physical gold sales in 2018. This share is said to be significantly higher since the trade war with the US and China sending the Yuan to record lows in response as a safe haven. The WGC said that as of September 2019, the People’s Bank of China’s official gold reserves totaled 1,936.5 metric tons, making it the seventh-largest gold-holder, just behind France and Russia. As a result China is a net-gold importer, and it imports the metal both through the mainland and through Hong Kong.

 Source: SGE

From The TradersCommunity Research Desk

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