January 11, 2008
Shanghai Gold Futures
China Gold Futures Gain on Debut as World Price Soars
“Gold for June delivery, the most active contract, rose as much as 21 yuan, or 10 percent, to 230.99 yuan a gram, or the equivalent of $988 an ounce, in Shanghai. That’s almost $100 more than the $891.70 peak reached by the world gold price today.
Gold for June delivery in Shanghai settled at 224.74 yuan a gram ($962 an ounce). The world price of gold was at $889.47 an ounce at the same time. Bullion for June delivery on the Comex division of the New York Mercantile Exchange traded at $905.20.
Each gold futures contract traded in Shanghai will represent 1 kilogram of the metal, with the minimum margin requirement set at 9 percent, the exchange said Dec. 29. The contracts are allowed to fluctuate by 10 percent from the 209.99 yuan a gram reference price today. Maximum price fluctuations will be limited to 5 percent from the previous settlement price after the debut.”
Here’s a look at the intraday (5 min.) chart of the gold futures contract traded in Shanghai. That $100 premium doesn’t look like it lasted too long, did it? But some sort of premium will always exist, right?
1 ounce = 28.3495231 grams
1 Chinese yuan = 0.13769 U.S. dollars (currently)
so
217.68 Chinese yuan (last price) = 29.9723592 U.S. dollars
29.9723592 U.S. dollars x 28.3495231 grams = US$849.70 per ounce
January 11th, 2008 at 11:35 am
CM - Do you know how could a price disconnection of such magnitude exist? Did the arbitrageurs fall asleep at the wheel?
January 11th, 2008 at 11:47 am
Spock: The article says only four Chinese banks can import gold so that’s one factor to consider, plus the Chinese Yuan is still not convertible which is another factor… so it’s tougher to arbitrage than one would think, I guess.
January 11th, 2008 at 12:19 pm
Ok I forgot, that makes sense. All these restrictions on who can play, no short selling of common stocks, and a pegged currency really make their markets very “inefficient”. Chinese with brains/balls and some spared coins must have made it big in the past few years. Did your manicurist retire yet?
January 11th, 2008 at 12:29 pm
Spock: They also have put trading curbs (the 5% band) in place, as they say in the article, so even if the global market moved violently in one day, the Chinese market couldn’t track it completely. Yes, the Chinese stock market is incredibly “inefficient,” but that doesn’t mean it’s easily gamed. My manicurist does indeed have a larger net worth than me now, but she continues to work because that’s what Chinese people do — they never retire, even the rich entrepreneurs.