Chinese funds gain from arbitrage opportunities in the yellow metal.
Gold fell for the first time in four days in Asia as the rally to more than $950 an ounce prompted Chinese investors to sell the metal. Bullion moved up to $952.92 an ounce the highest since July, prompting Chinese arbitragers to sell the metal in overseas markets and buy in Shanghai to take advantage of the price gap, according to Lin Yuhui, at China International Futures Co. Arbitragers profit from disparities in prices of securities that are traded on more than one market.
“Gold on the international markets hasn’t been able to rally in Asia because funds in China have stepped up arbitrage trading,” Lin said.
Bullion for immediate delivery fell by 0.8 per cent to $939.65 an ounce, before trading at $940.45. The metal is up 3.2 per cent for the week as demand for a store of value gains on concern the financial crisis may worsen.
Shanghai gold for June delivery added as much as 0.2 percent to 205.99 yuan a gram ($937 an ounce) and stood at 205.74 yuan at the same time, up 2.7 percent this week.
Arbitragers “make use of overnight gains in the international market to push up domestic prices,” said Lin. “At the same time, they take profit in the overseas market.”
Gold for April delivery was down 0.8 per cent at $941.60 in after-hours electronic trading on the Comex division of the NYMEX, while December-delivery gold in Tokyo was up 0.3 per cent at 2,755 yen a gram ($942 an ounce). Still, gold is up 7 per cent this year, at a time when crude oil is down 22 percent, as investors concerned that the recession will deepen turn to bullion as a hedge against the drop in currencies.
Gold, currencies
Gold priced in euro and pound hit a record, while the metal priced in Swiss franc reached a 28-year high recently. Bullion priced in Australian and New Zealand dollars and South African rand climbed to the highest ever on January 30.
Overseas investors are increasing their holdings of gold at the Perth Mint in Western Australia as they seek to preserve the value of assets. The value of gold held by all investors at the Mint has doubled to “comfortably over $2 billion” in the past year, with 80 percent from overseas, Nigel Moffatt, treasurer and manager of the mint’s depository, said.
“People are trying to devalue their currencies in order to give them the competitive advantage, but you can’t in this environment because there’s a lack of business, so if people get worried about holding currencies then gold is the place,” Graham Bibby, chief executive officer of Richmond Asset Management, said.
Among other precious metals for immediate delivery, silver fell 0.4 per cent to $13.470 an ounce in Singapore.
The author is a Bloomberg News columnist. The opinions expressed are his own
