The People's Bank of China (PBoC) has removed temporary restrictions on gold imports placed on certain financial institutions as the renminbi recovers.
According to anonymous sources, the restrictions were lifted last Friday. However, these sources were uncertain whether the improved renminbi situation had influenced the removal decision.
In August, China took measures to reduce and halt the issuance of quotas for international gold imports by banks. The country wanted to address the surge in gold purchases, which was driven by concerns about weakening domestic currency. In early September, the renminbi reached its lowest value against the dollar in 16 years. The restriction resulted in rising gold prices within the country.
The PBoC warned the market against bets on renminbi depreciation last week. It has implemented measures to support the currency, such as state bank purchases and reduced foreign reserve requirements for commercial banks.
On Monday afternoon, the renminbi rebounded from its low point and traded at approximately 7.286 per U.S. dollar.
The difference in Chinese gold prices with other countries has been growing since early July. Analysts say import restrictions partially caused this issue.
"Improving gold demand and relatively tepid imports in recent months may have led to local demand and supply conditions tightening, pushing up the local gold price premium," said the World Gold Council (WGC) in last week's report.
Last Thursday, calculations based on publicly traded prices revealed that the difference between the Shanghai gold price and the London gold price had reached an all-time high of $121 per troy ounce.
On Monday, the spread decreased to $76 following the relaxed curbs on gold imports by the PBoC.
The spread indicated a robust local interest in gold within China, as noted by multiple market participants. This strong demand bolstered global gold prices, which increased by 0.3 percent on Monday, reaching nearly $1,930 per troy ounce.
The Chinese central bank regulates the inflow of gold into the domestic market by assigning quotas to commercial banks. This method is used as an informal means to influence the flow of metal and market dynamics.
Chinese regulators argued that the renminbi might have been less stable if the ban on gold imports had not been enforced. It was due to a potential surge in dollar purchases that could increase capital outflows and pressure the currency.
Leading gold buyer
China ranks as one of the world's leading purchasers of gold and has consistently been increasing its gold reserves. In August, the PBoC announced that it had been acquiring gold for the tenth consecutive month.
This year, China has brought in approximately 900 tons of gold, marking the highest amount in the past five years. Gold constitutes roughly 1.38 percent of China's foreign exchange reserves, amounting to $3.16 trillion.
Gold demand is anticipated to rise in China as the traditional wedding season in October approaches. Ye Qianning, an analyst with GF Futures in Guangzhou, also said the demand and consumption for gold accessories will increase with the national holiday approaching.
The global gold market watchers remain cautious regarding its long-term prospects due to concerns about diminishing investment and jewelry demand and central banks worldwide reducing their high levels of gold purchases.
Julius Baer analyst Carsten Menke pointed out that prices above $1,900 per ounce contradict the current situation. He said the resilience in the global economy was not yet fully reflected in the market, as some still considered a recession very likely.