GOLD PRICE AFTER A STRONG MARKET

Due to the gold price fluctuation in the international gold market in 2002, the official opening of the Shanghai Gold Exchange on October 30 attracted great attention.

With the participation of many members, the Shanghai Gold Exchange has seen active transactions and relatively stable trading volume since its opening.

On the opening day, vast buys pushed the two trading varieties of the Shanghai Gold Exchange to their peak prices. Then the prices dropped back to their normal level, which was nearly identical to that on the international gold market. In the initial stage, due to the lack of long-term investing buys, the gold price in the domestic market was a bit lower than the international one. In the recent two weeks, as the international gold price received more technical support, stronger buys also appeared in the domestic market, which made the price slightly higher than that on the international gold market. Generally speaking, since the opening of the Shanghai Gold Exchange, the domestic gold price has been reasonable and fluctuated basically along with the international market.

According to transactions in the domestic gold market in the last four weeks, the gold market at the Shanghai Gold Exchange demonstrated the following characteristics.

Trading volume was relatively small. Market participants were mainly the demanders and suppliers of physical gold (jewelry manufacturers, gold mine enterprises, etc.) and the four State-owned commercial banks who are the market maker. Presently, the market is short of long-term investment, so market capacity is limited to only four hundred kilograms a day on average.

The Shanghai Gold Exchange was set up domestically with limited channels to the international market. Hence in spite of its correlation to the international prices, the domestic price, as far as the daily transaction is concerned, is to some extent independent and mainly influenced by the supply and demand in the domestic market. From the trading situation of the latest week, we can find that the price in the Shanghai gold market was somewhat higher than the international price with strong buys and weak sells. The main reason is that, under the background that the international gold price was supported and the sellers were reluctant to sell, the demands for physical gold by domestic enterprises especially the jewelry processors increased, which in turn pushed up the domestic market price. The lack in domestic gold supply and the gap between the supply and demand of physical gold also played a role in creating a strong market.

Due to the short history of the domestic gold market, technical analysis will not be applicable in the near future. Therefore, the analysis of the domestic gold price movement should still be based on the analyses of international gold price and the domestic supply-demand situation.