By Ashitha Shivaprasad and Polina Devitt
(Reuters) - The price premium for gold in top consumer China above global benchmark spot prices widened this week due to consumers and investors seeking refuge from the country's escalating trade war with the United States, analysts said.
In the latest salvo, China increased tariffs on U.S. imports to 125%, hitting back against U.S. President Donald Trump's decision to hike duties on Chinese goods to 145%.
Rising demand in China has helped gold resume the rally which saw benchmark prices, set in London, rebound after a brief retreat earlier this week to breach $3,200 per ounce and hit a record high of $3,243.82 on Friday. [GOL/]
"China has been bidding gold every single day this week, fuelled by tariff uncertainty and yuan depreciation, helping the metal to push to a new all-time high," said Hugo Pascal, a precious metals trader at InProved.
Robust demand for gold, despite record high prices, can be seen on the Shanghai Gold Exchange where the premium for gold in the afternoon auction on Friday was at 1.1% above the London benchmark compared to 0.15% a week earlier, according to his calculations.
Investors in China are piling into gold as the yuan touched a 2007 low against the dollar this week and slipped to a 19-month low against currencies of its major trading partners.
Global institutional and retail investors have headed for the safety of gold this year due to fears of the damage to economic growth from tariffs, which also create inflationary pressures and erode the value of financial assets.
In China's physical gold market, premiums widened to $24-$54 an ounce over the benchmark price this week from $6-$13 a week earlier. [GOL/AS]
"It is highly unusual for gold to see buying on price strength and it only typically occurs when factors are not just favourable, but compelling," said independent analyst Ross Norman.
Purchases by the People's Bank of China (PBOC), which has been buying bullion for five consecutive months, are helping to support the investment sentiment in the country.
China recently changed the rules to allow some of its insurance funds to invest up to 1% of their assets in gold, adding to institutional demand in the country.