Saturday, April 20th 10:36 AM IST

China Gold markets fail to handle Gold plunge

# China gold  # largest gold consumer  # SHFE gold contract  

On the other hand, spot market has a timing issue that imposed a hurdle for investors trying to sell quickly to reduce losses.

BEIJING(BullionStreet): Lack of diversity and liquidity in Chinese Gold futures markets were responsible for the sudden panic in country's gold markey during the 'gold plunge', analysts said.

They said during the period which starts from April 10, when a large number of gold holders want to short the metal to hedge against a further price fall, they have a problem finding enough parties willing to take the bet.

As gold trading channels in Chinese market are relatively narrow and the pricing power of country's

gold market is weaker than the more mature markets overseas, domestic gold prices are closely linked to movements in international markets with spot gold prices set during the night, Beijing time, when trading is closed.

When the Chinese market opens the next day, the deluge of sell orders can push prices down at a rate that triggers a suspension in trading.

Analysts added that the gap between trading times in Shanghai, London or New York has been a problem for domestic individual investors as the gold price in the global market dropped off the cliff — Chinese investors not sell off because the domestic trading platform was not in trading hours.

On the other hand, spot market has a timing issue that imposed a hurdle for investors trying to sell quickly to reduce losses.

While the precipitous fall in global prices has touched off a gold rush among Chinese consumers, gold producers and traders are keen to offload their huge stockpiles to minimize real and potential losses.

In doing so, they face a common problem that has become increasingly pressing since the price of the metal began to nosedive on April 10. The problem is the restrictive domestic gold futures market that lacks the liquidity and diversity to absorb a sudden surge in sell orders.

Gold producers and jewelry sellers that are listed in the A-share market said large inventory and price risks may affect their performance this year if the gold price continues to fall, but it is too early to tell what measures should be taken at the current stage.

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