Posted 6th June 2024

Which Country Should You Trade Gold In?

Many investors would like to discover more about the main gold trading avenues. In particular, knowing where to invest and trade gold. This article will explore the current global gold market and reflect upon its evolution.

What Are the Main Global Gold Trading Hubs?

The global landscape for gold trading is extremely intricate and constantly evolving. According to the World Gold Council, three dominating markets exist at present. These include the London OTC market (by far the biggest hub), the US Futures market, and the Shanghai Gold Exchange. The combined volume generated by these three markets accounts for roughly 90% of the total amount.

The London OTC market

London is the main hub for international gold trading. Despite the challenges faced by Brexit and the growth of Asian markets, London still represents around 70% of global notional trading volume, even if it has been losing market share.

Over its long history of activity, London has established unique vaulting infrastructures that possess a strictly enforced chain of custody. In addition, it has a special role to play in the current market, acting as a bridge between American and Asian trading hours.

The traditional London Gold Fixing no longer exists in the same way as before. Instead, the LBMA Gold Price, which is administered independently by the ICE, is set online twice a day via auction. This price continues to represent a global benchmark for bullion, traditionally considered to be 400-ounce bars with a “good delivery” standard. Thus ensuring metal quality in the Loco London market.

The US futures market (COMEX) 

The COMEX derivatives exchange is managed by the CME Group. It has become one of the most important references for the price of gold. The trading activity of COMEX is largely focused on the nearest expiry date of the contract, with prices usually being relatively close to the spot price. Longer contracts can have contango or backwardation, which essentially means prices are lower or higher than the spot price. Finally, the majority of contracts involve settled cash and not necessarily the physical delivery of bullion.

The Chinese market (SGE & SHFE) 

China’s growing role in both the international economy and global gold market caused its main trading venues to rise rapidly in prominence. 

The Shanghai Gold Exchange (SGE) was established over twenty years ago under close oversight of the People’s Bank of China. Today it is the world’s largest purely physical spot exchange. In 2016, the introduction of the Shanghai Gold Price took place, offering an alternative benchmark to London. The volumes traded on the Shanghai Futures Market have continued to grow significantly. This only affirms the crucial role which Asia has to play in the gold market.

How Have These Shifted Over Time?

As established, the international gold market is constantly evolving. In the words of the World Gold Council: “the structure of the gold market is facing an unprecedented wave of change resulting from evolving gold demand patterns, regulatory change, new types of participants and innovation”. In short, the gold market is facing major changes – a trend that will only continue to resurface in the next decade and beyond.

Using the terminology of the WGC, one could say that we are in the midst of a clear “West to East shift” in the gold market. Asian markets have become even more important with China and India generating roughly half of the international demand for bullion. Key factors affecting gold prices in 2024 are discussed further here: 

What Has Influenced These Changes?

China is currently the largest producer and consumer of gold. At the same time, investing in the yellow metal is deeply ingrained in Indian culture, with gold playing an important role as a symbol of wealth and status, as a gift at wedding ceremonies and regional festivals, religious ceremonies and as a store of value more generally. In addition, the population of both countries has significantly increased in the last few decades. The growth of Asian trading hubs has certainly been caused in part by demographic reasons. However, one cannot ignore the huge investments made by local government into this space.

What Does This Mean for Gold Prices?

What would this mean for the gold price? And what do investors need to consider? To put it simply, investors need to be aware of Asia’s growing role in the gold market. For instance, a steadily increasing percentage of COMEX volumes is transacted during Asian market trading hours. Thus volatility can be higher during such hours because of the high volumes being exchanged. 

At the same time, investors need to consider the economic situation of Asian countries. Speaking about the bullion market, Ajay Mitra (Managing Director of the WGC) once said: “If India sneezes, the gold industry will catch a cold”. This sentence continues to remain valid, even if one should also include China in their updated estimation of the current market. 

The global landscape of gold trading

There are several other crucial markets for gold. South Africa has minted coins for decades, with the celebrious Krugerrand. Many countries are active in gold mintage, whether it is the US with the “Eagle”, the UK with the “Sovereign” or the Perth Mint in Australia, which has recent coinage representing animals like the koala or kangaroo. 

Jewellery represents another significant part of global demand whilst industry demand accounts for just under 10%. On the topic of financial gold, ETF backed gold is still a growing sector which moves tonnes of precious metal each year.

Central bank gold reserves

Growing demand for gold among central banks in recent years is equally important to consider. In both 2022 and 2023, central banks purchased more than 1,000 tonnes of gold – a trend which appears to be continuing into this year. Fundamentally, it is clear that increasing demand from central institutions, particularly from BRICS countries or emerging trading partners, is helping to sustain the market.

More discussion on the impact of global economic indicators on gold can be found in this article:

Where to buy gold?

Which country should you trade gold in? At present, the gold market is mostly online. Thus investors should follow two key rules. The first and most important rule is that one should only buy gold through producers who have a solid track record. This ensures the authenticity and purity of bullion, avoiding any unnecessary trouble for buyers. Second, once a trustworthy producer has been secured, it is imperative to find the best trading environment and lower commissions in which to buy and sell bullion. A great platform is always an advantage in such contexts.

Carlo is an external market analyst for Kinesis Money. With a credential background in Economic Finance and International Exchange (MA), Carlo’s critical analysis of gold and silver markets’ performance is frequently quoted by leading publications such as Forbes, Reuters, CNBC, and Nasdaq.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.

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