In September, I proposed that Chinese futures traders, returning from their summer break, would once more drive gold prices significantly higher. This followed their stimulating spring performance, where they boosted gold prices by $400, or 23%, over six weeks. At the time of writing, gold was $2,497 an ounce; today it’s $2,738. This update confirms my forecast, yet I believe the most exciting phase is yet to come. The Shanghai Futures Exchange (SHFE) gold futures were key during the spring’s gold surge, which then impacted international gold prices.
The Financial Times noted a 400% leap in SHFE gold future volumes, marking this period as remarkable. After the spring's trading intensity, SHFE gold futures fell into a lateral state from mid-April, setting up for another likely surge, as I suggested previously. A decisive move above the 585 resistance level would indicate a new upward trajectory for gold prices, worldwide. As the data now shows, that's precisely what's happening. Since breaking out of consolidation in September, SHFE gold futures have been gaining momentum, paralleled by spot gold prices internationally. Technical analysis indicates that SHFE's patterns imply a move towards $3,000 an ounce in international markets.
This projection uses the "measured move" concept in technical analysis, expecting prices, post consolidation, to rise similarly to how they did post the initial rally. Recent SHFE charts reflect the spring rally of 105 yuan/gram followed by five months of a trading range. The current rally should similarly reach 105 yuan/gram, leading to a target of 690 yuan/gram, equating roughly to $3,000 per ounce. Given $3,000's psychological significance, it can act as a price magnet. It's plausible for gold to rise even further within this bull market, although a pause at the $3,000 level could occur.
Chinese gold pricing is closely watched by global traders—its premium or discount to international prices is a key indicator. China recently swung from a $40.60 discount to a $1.10 premium, hinting at renewed gold interest domestically. Trading volumes in SHFE are increasing steadily. This suggests the onset of major buying activity as $3,000 nears. While higher gold prices have deterred some physical buyers in China, the potential FOMO-driven rush might eventually offset this, pushing prices even further. Internationally, as key indicators suggest both debt and inflationary pressures are growing, gold remains a safe haven.
China's economic challenges, alongside its new fiscal stimuli aimed at battling these issues, bolster the gold bullish outlook. China resembles other major economies in monetary strategies to manage economic challenges. Ultimately, as Chinese traders and global conditions converge, gold prices are poised for a rally towards $3,000, creating a potentially explosive market phase. The combination of internal Chinese factors and wider international economic influences suggests continued strength in gold's upward trend.
