In the last few decades, we have observed a pattern of physical gold moving between the East and West. These flows are also linked tp the gold price. But what are the patterns of flow and what is the reason behind it?
How Does the Gold Market Move Between East and West?
The flow of the gold market between the West and East depends almost entirely on the price of gold. When the price of gold decreases, physical gold starts migrating from the East to the West. When the price of increases, physical gold flows back from West to East. Through this process, gold continues to pass through the supply chain, and is melted down and reprocessed for its new market.
What is the Reason Behind Such Flow Patterns?
The reason behind this flow is that gold is normally traded as currency and not as a commodity, unlike most other precious metals. This is the reason that there is no VAT on gold in Europe, and VAT is payable on other metals. Furthermore, the West sets the price of gold.
When Western investors retreat and the price drops, investors from the East start buying up gold. This makes the flow of precious metals move East, which also helps to prop the price up during times of weakness.
Subsequently, when prices rally again, Western investors buy gold. Many Eastern bullion dealers and banks see this as an opportunity to sell their gold, and the flow of gold returns to the West again. Physical gold is returned to the gold reserves in London, Zurich, and New York.
Which Countries Are Involved in the Movement of Gold?
India and China are the top physical gold buyers in the East. According to the World Gold Council, the top holder of gold among all the nations is the United States, followed by Italy, Germany, Russia, France, Switzerland, China, India, and Japan.
According to the London Bullion Market Association and CME Group, since the end of April 2022, over 527 tonnes of gold bullion was moved to two of the biggest gold markets in the West, the vaults in London and New York. In August, China imported 68.2 tonnes of gold from Hong Kong, hitting a four-year high in gold imports.
Gold's flow from West to East and East to West in indicative of a normal market movement. This cyclical pattern is likely to continue. The pattern of gold sales indicates how valuable the metal is worldwide. This is particularly true for central banks, who have been increasing their gold reserves recently. Even over the last 200 years, when banking systems were underdeveloped, the East was a major purchases of Western gold. Although the East routinely purchases gold bullion, it is the West's cyclical pattern of boom-bust markets that acts as the major influence on the metal's movement.