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Gold Price Premiums in China Hit All-Time Highs

Summary

  • Gold bullion prices in China reached a record premium compared to international prices.
  • The premium on the Shanghai Gold Exchange surpassed +$120 USD per troy ounce, an all-time high.
  • Silver prices in China also saw rising premiums, exceeding +7% above London silver price fixings.
  • Chinese investors are seeking ways to hedge against the devaluation of the fiat yuan renminbi.
  • Many Chinese remember the significant devaluation of their currency from 1980 to 1994.
  • Capital flight from China has been a concern, with locals turning to bullion and gold jewelry for long-term savings.
  • Japan's gold prices have been rising, indicating a potential trend in fiat yen devaluation.
  • The fiat yen may experience losses relative to the fiat US dollar.
  • The outlook for gold prices in Japan appears positive, and silver may eventually follow suit.
  • In the US, there is a trend of repealing sales taxes on investment-grade bullion purchases in various states, providing some benefits to precious metal buyers.

Record High Premiums for Gold Prices in China

This week gold bullion prices in China traded at a record premium to other international and western derivative driven prices, a sign of Beijing’s escalating battle to defend its currency the fiat yuan renminbi.

Bullion on the Shanghai Gold Exchange traded at a premium of more than +$120 fiat US dollars per troy ounce on Thursday (Sep 14). That’s the highest since the exchange was founded over two decades ago, as recent weak gold importation permits and an increasingly weaker fiat yuan collided to drive up local bullion prices to all time highs on both a nominal and percentage basis.

Premiums on silver in China also have been rising, going over +7% above quoted London silver price fixings. While that sounds and looks high looking over the last year of data if we pull back over the last decade and half or so we see the Chinese paid exorbitant premiums for lower price silver during most of the latter 2010s. 

Let's look at the bigger picture likely at play here.

Just a quick glance at the annual gold price chart in China throughout this full fiat currency era and we can see their local gold price in fiat yuan renminbi terms is on the cusp of a major breakout which could lead to years of positive price performance blue bars up, and to the right, higher and higher to come.

Hot money is always trying to escape capital controlled China. And given all the recent talk of more stimulus to spur on its slowing economy, understandably many locals are looking to find ways to hedge their long term savings via bullion and high grade gold jewelry items.

It is a common fear amongst mainland Chinese investors and savers the very real threat of fiat yuan renminbi devaluations because during a large portion of many of their lives from 1980 to 1994 they saw their local currency devalue sharply versus our fiat US dollar value ballooning from a low of 1.5 fiat yuan to one fiat USD, to a high of nearly 8 fiat yuan to one USD in a 14 year devaluation run. 

Those local lessons of massive losses to purchasing power are not dying off anytime soon, and thus this phenomenon is likely to persist in the coming months and years ahead.

Turning to another major fiat currency on the cusp of a devaluation breakout. This is the local Japanese gold price performance synched up with the fiat US dollar gold price performance since the year 2004. You can see that Japan is front running where we in the USA are likely to eventually follow, up and to the right.

This red resistance line drawn from the end of their late 1980s financial bubble mania phase shows just how close the fiat yen is to breaking out in relative losses versus the fiat US dollar.

Where the Japanese gold price is rocketing off to on the right is anyone's guess, but I would bet higher and to the right will become the norm. And the laggard left for dead local silver prices in the center here will eventually follow and outperform gold's lead.

Weekly Precious Metals Market Recap

The spot silver and gold markets traded sideways finishing this week close to where the began.

The spot silver price closed just above $23 oz bid while the spot gold price finished at just over $1,924 oz bid price.

The spot gold silver ratio closed the week flat again at 83.

Legislative Changes and Their Implications for Gold and Silver

Perhaps the most alarming news item of the week for silver and gold investors was the news that the Biden administration and the Department of the Interior are considering changing 151 year old laws in order to begin taking royalties or tax mining on US federal lands.

At the moment there are roughly 750 mines on federal lands.

For many US bullion buyers out there watching, at least there is a current silver lining to most laws as they pertain to precious metal purchases in the USA.

While both US political parties seem hell bent on current and future deficit spending, our currently circulating fiat currency's ability to store value into oblivion.

There is a growing trend of US states over the last few years who have dropped and repealed wrongheaded sales taxes on investment grade bullion purchases in most US states. 

Currently more than half of the 50 states in the USA do not charge taxes on items like silver bullion coins, silver bullion bars, or privately minted silver bullion rounds for example. 

The same certainly cannot be said for silver bullion in China VAT taxed at +17%, or the European Union with nations that also slap on silver bullion sales taxes in the high teens or more in many nordic countries.

I suppose it is a glass half full send off for my fellow silver gold and platinum bullion bulls out there.

And finally to close on a quick personal note from this week. 

Often I end our weekly SD Bullion Market Updates with the sign off to take great care of yourselves and those you love. 

Well those you love are often not merely your fellow humans.

Don't forget to love and care for those cuddly pets that you share your life with.

As I celebrate the beautiful closing of a great 12 and half year run with my recently late Rhodesian Ridgeback named Saint.

See you on the other side, dear doggie.

That will be all for this week's SD Bullion Market Update.

As always to you and all yours out there. 

Take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...

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