Gold stocks in Shanghai Futures Exchange warehouses have surged past 36 tonnes, nearly doubling in just a month. Traders are seizing the chance to profit from the big difference between high futures prices and lower spot gold prices, bringing physical gold to the exchange. According to the World Gold Council, there is strong speculative demand in China due to low interest rates. Although gold benefits from geopolitical risks and economic uncertainty, there’s a notable disconnect in the market. Retail jewelry demand in China fell by 45% compared to the previous quarter. On the other hand, demand for gold bars and coins remains stable, and gold ETFs are experiencing outflows as retail investors move to stocks.

Buildup In Shanghai Warehouses

The significant increase of gold in Shanghai warehouses, now over 36 tonnes, is an important indicator. Traders are capitalizing on the large difference between high futures prices and cheaper spot gold, leading to a flood of physical gold supply at the exchange. This situation suggests that Shanghai gold futures might experience downward pressure in the coming weeks. The high inventory acts as a ceiling on prices, and the arbitrage opportunity will likely decrease as futures prices draw closer to spot levels. Recent data from late July 2025 shows China’s Caixin Manufacturing PMI at 50.1, indicating a slowing economy that doesn’t support high gold prices for long. There is a noticeable divide in the market, creating uncertainty. While jewelry demand dropped significantly, investment demand for physical gold remains strong, highlighting a gap between consumer behaviors and speculators. This disconnect can lead to increased price volatility, offering chances for options traders.

Historical Patterns And Global Climate

We recall a similar situation with LME copper inventories in 2023. Back then, a sharp rise in warehouse stocks was followed by a phase of price consolidation and decline. This historical example reinforces our belief that the current high gold inventory in Shanghai is a bearish sign for local prices. Even with the weakness in Shanghai, the overall demand for gold still benefits from global economic uncertainty. For instance, COMEX gold futures have been stable around $2,450 per ounce over the past month. This suggests that the issues are primarily localized to China, potentially creating a strategy to short Shanghai gold while taking a long position in COMEX. Create your live VT Markets account and start trading now.

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