China, in my opinion, correctly, is pushing its market towards a mostly physical market. They are removing small traders and superfluous paper trades. The premiums being charged on the contracts are so large that it is hardly worthwhile buying them.

The CME, on the other hand, has gone more towards 24-hour-a-day, five-day tradeability, paper contracts, making them NON-CONVERTIBLE to gold or silver, settling only in cash.

Both markets serve important functions, but operate under very different principles and attract different participants.

Shanghai Gold Exchange (SGE) vs. CME/COMEX

The Difference

Shanghai asks:

“What is someone willing to pay to own physical metal today?”

The SGE’s principal physical contracts require buyers to have the full funds available and sellers to have the metal before the trade is executed. Settlement is delivery-versus-payment, with physical metal credited to the buyer.

CME asks:

“At what price are traders willing to make a futures contract today?”

Most participants never intend to receive bullion.

They are:

• Hedging mine production
• Hedging refinery inventory
• Managing ETF exposure
• Trading momentum
• Speculating
• Dare I say manipulating?

The overwhelming majority of futures contracts are offset before delivery. That does not mean the contracts are “fake”, it reflects the primary purpose of a futures market, risk transfer rather than physical exchange.

Price discovery is where the debate becomes interesting.

Shanghai price discovery

Driven primarily by:

• Chinese jewelry demand
• Industrial demand
• Investment demand
• Physical shortages
• Import availability

When Chinese demand increases dramatically, Shanghai frequently trades at a premium to Western benchmarks.

CME price discovery

Driven primarily by

• Interest rates
• Dollar strength
• ETF flows
• Algorithmic trading
• Speculative positioning
• Producer hedging
• Perhaps bank manipulation?

Large leveraged positions can move prices quickly, even when little physical metal changes hands.

Why Prices Sometimes Diverge

Suppose:

• China suddenly wants 200 tonnes of gold.
• Shanghai buyers compete for available bars. Price rises.
• Meanwhile, a large hedge fund sells thousands of futures contracts on CME. Paper prices fall.
• For a period, both markets may show different prices.

Eventually, arbitrage usually narrows the gap through imports, exports (where permitted), currency conversion, transport costs, and market participants taking advantage of price differences. Persistent premiums can also reflect local demand, taxes, or capital controls.

The major problem is that with cash-settled contracts, in order to arbitrage the price differential between CME and Shanghai physical metal has to change hands. If there is no physical metal being exchanged, the prices quoted between CME and Shanghai can diverge significantly.

Many precious-metals investors believe Shanghai better reflects “real” physical demand because:

• China is one of the world’s largest gold consumers.
• China is one of the world’s largest gold producers.
• Chinese citizens actively buy bullion.
• Industrial silver consumption is substantial.

Therefore, a persistent Shanghai premium often indicates strong physical demand.

The New Nearly 24-Hour CME Market

The CME’s almost around-the-clock electronic trading means that prices now react instantly to:

• Central bank announcements
• Geopolitical events
• Economic data
• Currency movements
• Algorithmic trading

Which Market Ultimately Determines Price?

My view is that both do, but over different time horizons.

Looking Ahead

One of the most significant developments over the next decade may be a gradual shift from predominantly Western futures-driven price discovery toward greater influence from Asian physical markets.

Whether that becomes a complete transition remains uncertain, but several trends support increased Asian influence:

• China and other Asian economies account for a large share of physical precious-metals demand.
• Central banks have been increasing gold purchases in recent years.
• Physical premiums in Asia can become important signals during periods of tight supply.

That does not necessarily mean paper markets will disappear. Futures markets perform valuable economic functions by providing liquidity and allowing producers, refiners, and investors to hedge price risk. More likely, the balance of influence between physical and futures markets will continue to evolve rather than one replacing the other outright.

The CME often sets the price today, but sustained physical demand and constrained supply are what determine whether that price can be maintained over time. When the two diverge, the key question becomes whether the futures price will converge toward the physical market or whether physical demand will ease enough for the premium to disappear. That interaction is likely to remain one of the defining themes in precious metals over the coming years.

I think several structural forces are pushing the two markets in different directions. That said, I would avoid saying the West is moving only to paper or China is only physical. Both markets have physical and paper components. The trend, however, does appear to be that Asia’s influence is increasingly tied to acquiring bullion, while Western markets remain centered on derivatives for price discovery and risk management.

Here are the reasons I think this divergence is occurring.

Different Views of Gold’s Role

China

China appears to view gold as a strategic monetary asset.

Gold is:

• A reserve asset.
• A means of diversifying away from U.S. dollar holdings.
• A source of financial resilience during geopolitical tensions.

That makes accumulating physical metal a national strategic objective.

The West

Western financial markets largely view gold as just another asset class.

It is used for:

• Portfolio diversification.
• Inflation hedging.
• Trading.
• Hedging commercial exposure.
• Dare I say market manipulation?

That naturally favors highly liquid futures and ETFs.

Different Financial Systems

Western markets have evolved around sophisticated capital markets.

Institutions routinely use:

• Futures
• Options
• Swaps
• Structured products

These instruments allow enormous amounts of risk transfer with relatively little physical movement.

China’s financial system has historically placed greater emphasis on controlling capital flows and developing domestic physical exchanges. That encourages more activity tied directly to bullion ownership.

Central Bank Behavior

One of the clearest differences is who has been buying.

Many emerging-market central banks—including China’s—have increased their reported gold reserves in recent years as part of reserve diversification.

• Gold held by a central bank cannot be replaced by a futures contract.
• A futures contract is a financial claim.
• A gold bar is a reserve asset.
• That distinction matters.

Industrial Demand

China is the world’s largest or among the largest consumers of:

• Gold jewelry
• Silver
• Solar panels
• Electronics

Large manufacturing sectors require physical metal.

Industrial users cannot manufacture solar panels using futures contracts.

Eventually they need bars, grain or fabricated metal.

Delivery Culture

Shanghai contracts are designed with physical settlement as an important feature.

COMEX contracts were designed primarily for hedging. That difference naturally produces different market behavior. One encourages ownership; the other encourages risk transfer.

The Dollar’s Role

For decades, international trade has revolved around the dollar.

As long as that system functions smoothly, Western institutions have less incentive to hold large quantities of physical bullion.

If countries become less willing to hold dollar reserves, demand for alternative reserve assets, including gold, increases.

That is one reason many analysts watch central-bank purchases so closely.

Gold holdings now exceed dollar holdings as reserves worldwide.

Geography of Gold Demand

The largest consumers of physical gold today are largely in Asia and the Middle East.

These regions generally purchase bullion for:

• Wealth preservation
• Jewelry
• Savings
• Cultural reasons

Western demand tends to fluctuate more with investment flows into ETFs and futures.

Can Paper Continue to Set the Price Forever?

This is the critical question.

In my opinion:

Only if physical metal remains readily available.

If refiners, manufacturers, investors, or central banks cannot obtain sufficient physical bullion, then sustained premiums develop.

Eventually those premiums tend to influence broader market pricing because arbitrage opportunities emerge and physical supply becomes the limiting factor.

History suggests that physical scarcity ultimately matters, although the timing and magnitude of its impact can vary considerably.

My Longer-Term View

I think we are witnessing a gradual evolution rather than an abrupt replacement.

Twenty years ago, Western financial institutions dominated precious-metals price discovery.

Today:

• Asia accounts for a growing share of physical demand.
• Central-bank gold purchases have been unusually strong.
• Physical premiums in Asian markets have periodically exceeded those in Western markets.

Those developments suggest that physical markets are becoming more influential, even though CME/COMEX remains the dominant venue for short-term global price discovery.

I don’t think the paper market is going away. Futures markets perform an essential economic function by providing liquidity and hedging. But I do think that, over the next decade, the balance between paper price discovery and physical price discovery is likely to become more even.

Paper markets have given the banks the opportunity to influence prices both to the upside and downside for many years, as long as the physical metals have been readily available. It appears to me that this situation is changing rapidly. When the chickens come home to roost, I expect large price volatility. It may be sooner than we think.

Silver particularly, in my opinion, is an absolute steal at these prices.

Gold and global money supply run pretty much the same trajectory. The divergence we see since 2025 is most unusual. It is most unlikely that the money (currency) supply will be reduced; if anything, the reverse, so gold prices have a way to go in order to catch up.

PLATINUM

BUY: On the Daily chart (06 July 2026). Still holding up.

URANIUM

SELL (12 May 2026) URA.

BITCOIN AND GOLD

Gold outperforms Bitcoin  (24 July 2026).  15.87 One ounce gold coins buys one bitcoin, this was over 41 ounces August 2025.

ETHUSD: BUY: ( 11 June 2026)

BTCUSD: SELL: 26 July 2026.  NASDAQ (Cyan).

GOLD AND SILVER STOCKS

22 July 2026 Gold stocks outperform gold. An excellent indicator for the gold price to rise as well.

Silver outperforms silver stocks (06 July 2026).

GOLD AND SILVER

Silver to Gold Ratio

Silver outperforming Gold. (22 July 2026)  Silver is coming out of the ground at about 8:1 and the Gold: Silver ratio is 70.27:1.

GOLD TO USD

Gold outperforms USD, (04  July 2026). A struggle at present.

Copper (BUY 22 July  2026)

GOLD AND SILVER CHARTS

Gold’s low of the week was $3,996.00 and the high was $4,120.00 now trading at around $4,100.00.

• Gold Monthly:  is a SELL. (25 March 2026). Looking more positive. Still negative signals.

• Gold Weekly:  (SELL 19 March 2026)  Initial signs of recovery.

• Gold Daily: (BUY 6 July 2026).  Interestingly, gold daily is holding its buy signal.

The low for Silver this week was $56.63 and the high $60.08 trading around $58.13 at present. 

• Silver Monthly: (SELL: 20260430.  ( Buy $24.00 March 2024 to Sell May 2026 $73.13 = 204% Gain in 2 years 2 months).

• Silver Weekly: (SELL: 09 February 2026). Negative indicators flattening.

• Silver Daily: BUY (22 July 2026). 

Fort Kobbe International Vaults provides secure storage services only and does not buy, sell, broker, recommend or act as an intermediary in precious metals transactions.

Clients who request an introduction to an independent precious metals supplier may contact our preferred partners by clicking here.

Any purchase or sale is conducted solely between the client and the selected supplier.

A video by Mike Adams on the Goldbacks. Well worth a look. watch here

On the Stockcharts.com charts above, the blue vertical lines are our proprietary system buy signals and the red vertical lines are system sell signals – for information purposes only

An interview with Josh, owner of Scottsdale Mint: watch here

Please contact us to arrange the purchase and storage of your gold and silver requirements in a safe, insured location outside of your jurisdiction.

If you are interested in an overview of Fort Kobbe, you may want to have a look at this video: Mike Brown, Director, Fort Kobbe, International Vaults, A DotCom Magazine Exclusive Interview

This is my interpretation of the market and is not to be taken as financial advice. Before making any buy or sell decisions, I recommend that you consult with your professional financial advisor.