Drivers of the Shanghai-London gold price discount and outlook for 2021

Primarily driven by the COVID-19 pandemic and its far-reaching impacts, China’s gold demand in 2020 declined by 27% compared to 2019, the lowest in a decade. One of the side effects from such weakness was the widest Shanghai-London spot gold price discount in history. Averaging -US$24/oz in 2020, the local Chinese gold price spread remained far below its 10-year average between 2010 and 2019. 

Our analysis shows: 

  • China’s gold supply shortage, costs associated with importing gold, as well as restrictions on gold’s imports in China contributed to a local gold price premium during most days
  • Significantly weakened gold demand, relatively ample gold supply and the restrictive nature of gold exports could be main drivers for the record-level Chinese gold price discount in 2020
  • China’s gold consumption in 2021 is likely to recover further, albeit with challenges.
     
 

The significant weakness in China's gold demand contributed to a previously unseen Shanghai-London gold price discount in 2020*

Market Update: Feb 2021

Sources: ICE Benchmark Administration, Metals Focus, Shanghai Gold Exchange, World Gold Council; Disclaimer

*As of December 2020. China's gold consumption includes quarterly local demand for gold bars, coins, jewellery and ETF products. The spreads are expressed as quarterly averages of the differences between Au9999 and LBMA Gold Price AM as they have the narrowest trading time window and they are important benchmark spot gold prices.

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