They are saying gold contracts priced in yuan trading in Hong Kong have an equivalent price of $1424 USD while gold contracts trading in the US and Tokyo priced in dollars are $1560. How can such a huge arbitrage exist? Am I missing something? Should be shorting US gold and buying HK gold. http://www.bloomberg.com/news/2012-...ng-in-yuan-slides-78-from-january-record.html
Whatever is written versus what's actually trading are often very different. Free money doesn't hang around for long before somebody picks it up. All the investment banks and funds have a big presence in the Far East so if there's anything there (free money) they're going to pick it up before those with an IB account......
Could it be a fundamental price difference? If you pay customs to get the gold into the country then - ah - the spread will not narrow below that. Which would mean that yes, there is a difference, but no, you can not use it because - there is no spread the moment you MOVE the assets and close it out for real?
When you pick up your gold bars in Hong Kong and attempt to carry through customs back to the US please let us know how it goes... As it happens, I visited the Toi gold museum last year in Japan where you can touch the largest bar in the world (250kg):- http://en.wikipedia.org/wiki/Toi_gold_mine Anyway, the gift shop sells these fake gold bars made of steel / tungsten but even though I was tempted to pick one up and stick it on the mantlepiece to throw any potential future burglar off piste, even carrying a fake through customs might ring alarm bells for a bored immigration officer looking for some action with the rubber gloves. Wrt gold generally I'm also surprised that price action is not stronger given the possibility of EZ breakup, seizure of EUR bank accounts via capital controls in Greece, Spain, etc. If you're living in one of these nations surely you'd be making contingency plans and gold would be part of the mix. But in light of the theoretical arbitrage which you highlight and current Chinese slowdown perhaps it signals how significant Chinese gold buying was in driving the gold price up in recent years, and now we're seeing the other side of the (gold ) coin. It tells me that Gold above $1550 will be hard to sustain, even with demand from Europe.
If you check the Chinese Gold Society website http://cgse.com.hk/en/ ...it is showing a price at 320 RMB per gram. Multiply by 31.1034 and you get 9953 RMB per troy ounce. That is $1570 in USD based on today's RMB fix (USD/RMB =6.3355) I think it is an error in the Bloomberg article, the price difference in less than $10 by my calculations.
Thanks for all the replies. I figured if there was such a large gap, there MUST be a reason. No way for the market to have such a gap that is not exploited. Also, wouldn't be the first time for a financial journalist to have their numbers wrong. Makes sense that there would be a gap in line with transportation costs and taxes, but that just seemed so wide that it would even encourage smuggling, considering gold is such a generic commodity.