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Gold Price Drops to 1-Week Dollar Low as ECB Cuts Eurozone Inflation & Growth Forecasts

September 4, 2015
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GOLD PRICES fell to a 1-week low at $1122 per ounce in London trade Thursday as the US Dollar rose on the FX market following a cut to the European Central Bank’s outlook for inflation and growth in its 330-million citizen currency zone.
 
Euro gold prices bounced €10 per ounce to recover last week’s closing level of €1110 as the single currency fell.
 
With US jobs data due Friday, “Investors are just waiting on the sidelines to see what the Fed will decide” about raising US interest rates from 0% when it meets in a fortnight, Reuters quoted consultancy Capital Economics’ analyst Simona Gambarini overnight.
 
Futures contracts on the Fed Funds rate now put the odds of a hike at this month’s policy meeting at one-in-three.
 
“The probability of a September hike has ticked upwards from [last week’s] low levels,” notes Japanese conglomerate Mitsubishi’s analyst Jonathan Butler, but “confusion” amongst Fed policymakers “serves to confirm that rates will remain lower for longer.
 
“Once an initial rise has been fully priced into gold and its sister metals, the complex stands to make some gains.”
 
Expectations of a US Fed rate hike, combined with “concerns about the growth transition in China [and] an increase in risk aversion” mean that “downside risks to the outlook have risen,” said the International Monetary Fund in a briefing note for G20 ministers and central bankers meeting in Ankara, Turkey tomorrow, cutting its 2015 global GDP growth forecast to 3.3% from the 4% forecast a year ago.
 
“Renewed downside risks have emerged to the outlook for growth and inflation,” agreed European Central Bank president Mario Draghi today, holding ECB rates at record lows of 0.05% after today’s policy vote in Frankfurt.
 
With 1 year left in the ECB’s current €60 billion per month QE bond buying, “There was no discussion on changing size or pace of the purchase programme today,” Draghi’s team tweeted during his scheduled press conference.
 
Gold prices “edged sideways” in earlier Asian trade Thursday, says the dealing desk at Swiss refining and finance group MKS, “as the Chinese took their first day of a two-day holiday” to mark 70 years since China’s victory over Japan.
 
“Leading into tomorrow’s NFP release,” says MKS of the US jobs data due Friday, “$1125 is an important support” for the gold price “if it is to break higher to test $1150.”
 
Gold imports to No.2 gold-buying nation India are set to drop 10% in 2015 from last year thanks to weak monsoon rains and a poor harvest, reckons Ketan Shroff of trade body the India Bullion and Jewellers Association.
 
Silver bullion imports to India have so far jumped 50% against the first 8 months of 2014, note specialist analysts at Metals Focus, HQ’ed in London.

Gold Bullion 'Set to Test 2015 Downtrend' as Indian Imports Defy Poor Monsoon

September 3, 2015
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GOLD BULLION prices slipped to 2-day lows of $1132 per ounce late in London trade Wednesday, retreating 1.3% from yesterday’s 1-week high as Western stock markets crept higher but commodity prices fell yet again.
 
“Support for the yellow metal was evident around $1135” in Asian trade overnight, said a note from Swiss refining and finance group MKS.
 
With the Shanghai gold market now closed until next week for China’s WWII Victory Day commemorations, “Gold looks range bound leading into Friday’s [US jobs] report,” MKS says.
 
Holding above its 20-day moving average however – now at $1124 per ounce – gold “remains well placed to test the 2015 downtrend at $1163,” says the latest Bullion Weekly Technicals from Karen Jones at Germany’s Commerzbank.
 
“It is hard to get too bullish,” countered a daily technical analysis from bullion market maker Scotia Mocatta, “considering [that] falls are more significant than the bounces.
 
“We believe this is a consolidation situation with only a breach of $1168 bringing in fresh buying.”
 
“Physical markets remain somewhat subdued,” agreed a London trading desk Wednesday.
 
Bullion analyst Matt Turner at Australia’s Macquarie bank meantime highlighted “the potential for near-term gold weakness,” pointing first to how gold has only rallied during US Fed rate-hiking cycles “after the tightening begins and is gradual,” and also how physical demand in major consumers India and China “face potential challenges”.
 
Monsoon rains in India – the world’s No.2 gold buying nation – will finish well below average in 2015, the Meteorological Department said Wednesday, potentially denting farming incomes.
 
“Given that rural households account for the lion share of Indian gold demand,” said a recent report from analysts Metals Focus, “it is not surprising that jewellers [had] been cautious about increasing stocks.”
 
Gold imports to India, however, jumped this summer as wholesalers stocked up at 5-year low prices ahead of the traditional post-harvest festival season culminating with Diwali in November.
 
India imported 69 tonnes of gold bullion from Switzerland in July, according to Swiss trade data, and the major Indian airfreight hub of Ahmedabad alone saw August inflows double from a year earlier to almost 16 tonnes.
 
Solid trading in the Shanghai Gold Exchange’s major domestic contract meantime saw wholesale bullion delivered in China close at a strong $6 per ounce premium to London quotes, incentivising new imports to the world’s No.1 consumer nation.
 
Ahead of the Victory Day shutdown in Chinese markets, the SGE’s main international contract – dealt for Yuan held in offshore accounts – in contrast recorded zero volume for the third time since early July.

Gold Price Hits 1-Week High as Dow Sinks 400 Points, 'Zero Chance' of Fed Rate Hike After Weakest China Data in 3 Years

September 2, 2015
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GOLD PRICES touched 1-week highs of $1145 per ounce Tuesday as world stock markets fell sharply again and New York’s Dow Jones index dropped almost 400 points at the open.
 
Gaining1.0% from last weekend, wholesale gold bullion for London delivery found a clearing price on solid volume of $1141.90 per ounce at Tuesday morning’s LBMA Gold Price auction.
 
That was a five-year low when first reached in mid-July.
 
China’s stock market meantime closed Tuesday 1.6% lower after new data showed manufacturing activity in the world’s second largest economy shrinking at the fastest pace since 2012.
 
Western equities fell harder, dragging Eurozone markets well over 2% down as crude oil slumped more than 4%, and major government bond prices rose, pushing market interest rates down.
 
Shares in global hedge-fund managers Man Group (LON:EMG) dropped 5.8% – more than twice the London FTSE’s broader drop – amid reports that its Chinese division’s chairwoman, Yi Lifei, has been detained by Chinese police investigating insider trading and “false information” causing “panic and disorder” during last week’s dramatic drop in Shanghai’s stock market.
 
After cutting interest rates and pumping $200 billion into the stock market since it began crashing 40% from June’s 7-year peak, Beijing today urging listed companies to issue cash dividends, go on a mergers & acquisition spree, and buy back their own shares in a bid “to push forward reforms of State-owned enterprises and promote the steady and healthy development of the capital market,” according to official newspaper China Daily.
 
Shanghai gold premiums, over and above comparable London quotes, eased back on quieter volumes, but held near $3 per ounce after turning negative amid last week’s ‘Black Monday’ equity turmoil for the first time since early July.
 
“Only a definite move above $1163/1173 will mean further recovery,” says Stephanie Aymes, head of technical analysis at French investment bank and bullion market-maker Societe Generale, pointing to the gold price’s “multi-month descending trend.”
 
“Our view,” says Tom Kendall at Chinese-owned ICBC Standard Bank in London, “remains that…another test of the resistance area around $1162/65 is likely.
 
“The prospects of a September US rate rise are close to zero, and…[bearish traders] continue to cover in the run up to the FOMC meeting.”
 
Latest data from US regulators the CFTC show hedge fund and other speculative traders retreating for the fifth week running from end-July’s record large bearish betting against gold prices.
 
The single Euro currency ticked higher against the Dollar on Tuesday, but held almost 5 cents below last week’s sudden 2015 high above $1.17 – a peak swiftly lost as US Fed policymakers told the annual Jackson Hole central bankers’ conference that they intend to push ahead with raising interest rates from zero despite the stockmarket turmoil.
 
The Fed’s first rate rise since 2006 “is now looking more likely in December than September,” Bloomberg quotes economist Vyanne Lai at National Australia Bank Ltd. in Melbourne today.
 
“[So] gold prices may follow a gentler declining trend than previously expected, but the market remains entrenched in a bearish cycle.”
 
But “given the mounting problems” in equity markets, counters Singapore brokerage Phillip Futures, “it is unlikely that gold may dip drastically in the near term.
 
“The momentum right now is for gold to rally more than to fall.”

Gold Prices' Weekly Fall Following a 'Rock-and-roll Week' in Equities, 'Upbeat' US Growth Data

August 28, 2015
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GOLD PRICES traded at $1128.37 per ounce on Friday midday in London, showing a weekly drop after 3 weeks of gains as Asian shares rallied on “upbeat” U.S. economic growth data following a chaotic week starting with the Chinese Black Monday.

The American, Chinese and Japanese main stock markets closed up while European equities dropped, erasing weekly gains on Friday morning.

The US Dollar versus the Euro rose slightly to $1.12760 from Thursday despite a weekly fall, which halved a previous one-week hike.

The 10-year US Treasury bond yields reached 2.15% Friday following an early week level under 2%, an almost 4-month low.

The crude oil US contracts rose to a 2-week high at $42.87 per barrel and Brent also showed a weekly hike.

The so-called Black Monday in China created a shockwave across global markets denting investors’ confidence. The plunge didn’t last as the benchmarks Shanghai Composite and Shenzhen Composite closed up 4.8% and 5.4% respectively on Friday. Chinese equities still ended the week almost 8% lower.

Positive economic data from the US, with better than expected GDP figures released on Thursday, calmed sentiment as Asian markets saw a second day of rally on Friday.

Gold Prices fell during the whole week after Black Monday and the ensuing chaos in the Asian and Western stocks markets to reach a one-week low at $1118.17 per ounce on Wednesday. Prices were almost 1.16% up Friday morning from this low but overall on the week were down $29. This weekly 2.5% drop was the fastest since week commencing July 20th.

“We think [gold] prices will likely head lower over the next few days,” said Edward Meir from INTL FCStone in a note on Friday, “since gold is not only selling off on bearish news, but more importantly, it does not seem to be pushing higher on bullish news,” such as when stocks plunge.

“The notion that gold always rises when the equity market falls is false,” said Charlie Bilello, the director of research at Pension Partners LLC, managing $200 million.

New data showed that the U.S. economy expanded at a rate of 3.7% in Q2. The upward revision of the data prompted expectations of a rate rise happening this year despite the market turmoil. Investors were considering the sustainability of the US growth and interest rate hike by the Fed in September.

“A huge portion of this increase in U.S. GDP numbers came from a build up in inventories,” told an analyst at Phillip Futures Pte in Singapore, “which probably explains why gold prices managed to hold.”

Holding above the $1100 mark suggests “the market is pricing in the probability that the September rate hike won’t materialize,” added the analyst, concluding that the hike could happen in December.

The precious metals consultancy Metals Focus said in a note published on Tuesday that it saw a Chinese hard landing avoided and Fed rate hike still possible late in the year.

“Once the market shifts attention back to the Fed, downward pressure is projected to build on the yellow metal again in the final third of the year,” added Metals Focus

The bottom of the market is in sight and investor sentiment [towards Gold] should recover in 2016, concluded the consultancy group.

The fall in gold prices from a 7-week high failed to spur physical demand in Asia. The Chinese premium above the London international prices for gold main contracts in Shanghai stabilised around $3.5 per ounce since Wednesday.

“There’s not much interest on the physical side,” Ronald Leung, a Chief Dealer at Lee Cheong Gold Dealers Ltd in Hong Kong, told Reuters. “The Chinese are still concentrating on the stock market rather than the gold market.”

Meanwhile this week, the Chinese authorities were investigating four securities brokerages as well as employees at its securities regulator, according to the official Xinhua News Agency reported Time.com. A former chairman at China’s largest investment bank CITIC Securities was also being detained.

Over in Europe, EU antitrust regulators were investigating alleged anti-competitive behaviour in precious metals spot trading. National regulators in Germany (Bafin), the UK (FCA) and in Switzerland (FINMA) were also looking into precious metals trading and commodity benchmarks, revealed Reuters.

Silver traded at $14.46 Friday midday extending the gold price drop and seemed set to finish the week about 5.6% down. Silver prices drifted lower this week to touch $14.00 on Wednesday, a low level not reached since the summer of 2009.

Gold Prices Prove Solid as Major Chinese Stock Indices Hit their Lowest Level since December

August 26, 2015
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GOLD PRICES quickly touched a new 7-week high of $1169 per ounce on Tuesday morning in London, while European and US stock market indices bounced back after the shockwaves sent by the recent sharp decline of Chinese equities.

Silver fell to $14.83 per ounce, while other commodities came under bigger pressure. Brent crude oil remained near $45, the 6.5-year low to which it fell yesterday.

The Shanghai Composite index sharply fell by 7.6%, hitting its lowest levels since December. Japan’s Nikkei index also closed 4% lower.

Today China’s central bank cut its benchmark lending rate for the fifth time since November in an attempt to boost its exports. According to Bloomberg, this was seen by many analysts as evidence that Beijing is concerned about their slowing economy.

Investors also became increasingly skeptical about Beijing’s ability to control the situation.

“What happened yesterday was purely panic,” said Peter Dixon, a global economist at Commerzbank.

Despite the nosedive of Asian stock markets, European shares rallied on Tuesday, shrugging off the further decline in China. The FTSE 100 increased by almost 2% at 6,003.72, while Germany’s Dax and France’s Cac 40 were both up by more than 3%.

The demand in gold was boosted by the recent global equity slump due to the metal’s reputation as a safe-haven asset. After a short hike to $1169, gold prices fell back to stay around the key psychological level of $1150 per ounce. Gold prices in dollar terms have gone up by 6% so far this month.

“Gold is holding its own well despite the heavy losses suffered by commodities across the board,” an analyst from Commerzbank said in a daily note.

“Looking further ahead, the [US interest] rates outlook has become more gold-friendly in our view, and the metal could regain the 1180/1230 zone,” reckons Tom Kendall from ICBC Bank.

Meanwhile, gold prices in China today fell below London’s international benchmark for the first time since 8th July, offering a discount of $1.69 per ounce.

This would usually indicate that the local demand is weak. However, despite the discount on Shanghai prices, the volume of traded local gold contracts rose to 19.978 billion on Tuesday, compared to 17.276 billion yesterday.

This could be a margin call due to the highly volatile local equity market, as investors are now forced to sell other assets, even at lower prices, to pay back their borrowed cash, as a trader in London suggested.

Back in Europe, German business confidence unexpectedly rose in August. The Ifo institute’s business climate index climbed to 108.3 in August from 108 in July, despite negative forecasts by economists.

Companies brushed off concerns that China’s slowdown would drag on the nation’s economic growth, according to Bloomberg.

Gold Price firms amid China’s ‘Black Monday’ shocks global financial market

August 24, 2015
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GOLD PRICES held firm in a tight range on Monday in London, trading above $1155 per ounce as China’s ‘Black Monday’ panic grips global financial market.

The benchmark Shanghai Composite fell by up to 8.5 per cent, erasing all of its 2015 gains.  China on Sunday finalized rules to allow its big government pension fund for the first time to buy stocks, a move that could free up billions of dollars for share purchases, the official government Xinhua News Agency reported.

Following China’s factory sector shrinking at its fastest rate in almost 6-1/2-years in August, a cut in bank reserve ratios expected by speculators failed to materialize.

The Hang Seng China Enterprises Index of Chinese stocks in Hong Kong fell 5.8 percent to its lowest level since March 2014 and the Japanese Nikkei lost around 2.8% to hit a five-month low, while the Australian S&P/ASX 200 was down 2.9%. 

In morning trade, London’s FTSE 100 index was down by 3.5%, while major markets in France and Germany lost more than 3%.

Brent crude fell below $45 a barrel for the first time since March 2009 and West Texas Intermediate (WTI) extended its losses below the $40 a barrel, also hitting a low since February 2009.

The Bloomberg Commodity Index lost as much as 2.2 percent to 85.8339 points, the lowest level since August 1999.

The US dollar index, which measures the greenback against a basket of currencies, retreated 0.4 per cent, a fourth straight loss, to 94.618 amid a recovering Japanese currency which investors treat as a safe haven asset, which was up 0.6 percent to 121.3 vs US dollar, its strongest since July 9.

“It is a China driven macro panic,” said Didier Duret, chief investment officer at ABN Amro to Reuter. “Volatility will persist until we see better data there or strong policy action through forceful monetary easing.”

“Certainly gold is finding itself a bit of a safe-haven bid with all the volatility that’s going on in the markets,” said Victor Thianpiriya, commodity strategist at ANZ Bank.

“If things do get a lot worse then gold will certainly go a lot higher.”

Gold rose to $1,168.40 last Friday, its highest since July 7. It gained more than 4 percent last week, the most since mid-January.

According to data gathered by CFTC, the US regulator, last Tuesday COMEX gold futures & options net position of managed money turned bullish for 1st week in 5 weeks.

Silver’s net position of managed money also continued to be bullish last week after 7 bearish weeks.

According to the latest data from the International Monetary Fund, in July Kazakhstan increased its gold reserves about 2.49 metric tons to take its stash to about 208.14 tons as Malaysia bought 0.62 tons to hold 37.9 tons. Colombia sold 64 percent of its gold reserves to leave it owning just 3.76 tons.

Gold Prices Benefit from Fed’s Hesitation and Concerns over Chinese Growth

August 21, 2015
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GOLD PRICES lost $16 dollars per once inside 7 hours on Friday morning in London to $1151.73 per ounce. Yet the precious metal gained almost 3.3% on the week so far, as world stocks dropped on the Fed’s hesitation to hike its rates, new disappointing data from China and the Greece crisis.

Asian stocks plunged yesterday as did European and American equities on Friday. Meantime the US crude oil contracts fell to a 6-year low, just shy of $41 per barrel in what an analyst called a “bloodbath.”  

The yields of the US 10-year Treasuries fell to an almost 3-month low at 2.00%.

The Euro rose against the US Dollar to $1.12850, a level last reached end of June.

Although Fed officials agreed that the state of the US economy should warrant a lift-off of the interest rates, they believed that it was a risky move in the context of a lagging inflation and a weaker world economy.

Markets and investors still digesting the FOMC’s July meeting minutes released on Wednesday reacted as there was no indication of a hike of the Fed interest rates.

Traders saw a 32% likelihood of such a rise in September, according to data compiled by Bloomberg.

As a result, more and more investors believed the move would happen in December.

After the Fed’s minutes release, the US currency eased and gold prices in dollar terms hiked to a 5-week high.

“What’s supporting gold is that from unrelentingly bad news,” told analyst Matthew Turner from the Australian bank Macquarie to CNBC yesterday evening, pointing to the fact that “the news flow has been more bullish to gold after the Chinese central bank currency devaluation.”

The gold prices’ strength currently stems from a series of news and events in the world first largest economies, namely “the recent bearish data out of China including the recent currency devaluation, heightening concerns of greater economic issues, and more immediately the fading chances of a Fed lift-off for September,” said Societe Generale head of commodities research for Asia in Singapore, Mark Keenan, talking to Bloomberg.

The Chinese Caixin Manufacturing PMI from Markit fell in August and showed a bigger contraction of the services economy than forecast, while the Shanghai stock index lost 3,3% on the day.

Other Asian markets followed with the Japanese Nikkei dropping by 2.88%.

Gold premiums in Shanghai over the London international benchmark doubled over night to $5.2 per ounce.

Over in Europe, after the Greek Prime Minister’s resignation, Greeks prepare to go to the polls in September.

Despite its recent strength, at €1024.16 per ounce, gold in Euros was 2.87% higher on the year yet still 12.4% lower compared to its yearly peak of 23rd January.

Gold Prices Close to 3-Week High amid Sliding Asian Stock Markets

August 20, 2015
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GOLD PRICES touched a high of $1124 per ounce on Wednesday morning in London, following global equities weakening on concerns over the Chinese currency and stocks.

Silver fell through the psychologically important level of $15.00 per ounce and briefly touched $14.74. Due to the widening gap, the gold/silver ratio climbed to a four-week high of more than 75.

According to Bloomberg, investors’ holdings in gold-backed exchange-traded products (gold ETFs) are close to their lowest level since 2009.

Investors were waiting for the release of the Federal Reserve minutes which may give further clues on the timing of an interest rate increase after a jump in U.S. housing starts.

Gold prices rose well above $1120 per ounce this morning nearing the 3½-week high it reached last Thursday. The rapid price recovery confirmed that the lower prices generate higher demand among price-sensitive investors.

Last week, gold demand saw its biggest weekly jump since June after China devaluated the yuan. On Monday, the People’s Bank of China unexpectedly started trimming the value of its currency to a multi-year low against the US-dollar.

Asian shares retreated to two-year lows after Chinese stocks wildly oscillated, continuing to raise concerns about the stability of the world’s second largest economy.

While the devaluation provided gold with temporary support, the metal will face “some headwinds” from the volatility in the Asian markets and the longer term recovery of the U.S. economy, said Vyanne Lai, economist at National Australia Bank Ltd.

Last week, China announced it had increased its gold reserves in July by further 19 tonnes, increasing its total holdings to 1677 tonnes.

Financial markets were also looking at the minutes from the Fed’s last meeting in July for guidance on the timing and pace of tightening their expansive monetary policy. The uncertainty about when the Fed might raise the interest rates currently speak against significantly higher gold prices.

The fact that the number of U.S. new-home construction climbed in July to the highest level in almost eight years also supported the perception that the Fed would hike interest rates in September, although most analysts expect a gradual approach.

The rise of US interest rates would be the first since 2006 and would reduce the appeal of non-interest bearing assets such as gold.

Back in Europe, the German parliament seemed set to back a third bailout for Greece today.  Although several members of the Bundestag said they would oppose the new € 86bn aid package, Germany’s Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble were pressing decision-makers to back the move.

By Steffen Grosshauser

Gold Price Steadies After Yuan Devaluation, China 'Must Liberalize' to Gain Pricing Power

August 17, 2015
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GOLD PRICES held steady against the US Dollar on Monday morning in London, as China’s stock market reversed earlier losses but Eurozone equities erased opening gains.
 
Gold priced in the Euro edged 0.5% higher as the single currency ticked lower on the FX market, but continued to hold stronger against the Yuan from last week’s ‘devaluation’ by Beijing.
 
After the LBMA Gold Price – the world’s benchmark daily price – saw heavy volume set the highest weekly finish since mid-July on Friday at $1118.25 per ounce, interest eased Monday morning with the AM auction ‘fixing’ one Dollar lower in London.
 
Silver prices held firm above last week’s finish, but traded 2% below Friday’s spike to 1-month highs at $15.62 per ounce.
 
“Only by involving Chinese financial institutions in the global gold fix mechanism,” says Beijng-approved news-site China Daily, quoting Roland Wang at market-development organization the World Gold Council, “and by advancing [Yuan-denominated contracts] can China increase its gold price-fixing power accordingly.”
 
Further liberalization of China’s domestic gold exchanges will see the world’s largest mining and consumer nation “taking its place” in the world market, says Wang.
 
Trading in Shanghai’s ‘international’ gold contract expanded on Monday, but volumes stayed at one-seventh their average size since launching 12 months ago, having spiked and then fallen to zero between spring and summer 2015.
 
A report from the World Gold Council last year said “as much as 1,000 tonnes of gold may have been used for financing deals in China,” notes Reuters columnist Clyde Russell today.
 
“If this gold is released back into the market, it will cut the need for imports into China, which would be bearish for gold prices.”
 
Shanghai gold prices held steady against the Yuan on Monday, edging their premium above London prices – effectively the incentive offered to importers – up to $2.60 per ounce, some 25% above the last 12 months’ average, as the Chinese currency crept higher again on the FX market.
 
Recovering one-third of last week’s sharp drop against the Dollar, sparked by the People’s Bank changing its FX policy from a fixed exchange rate to market prices, the Yuan still held almost 5% weaker against the Euro.
 
“Make no mistake,” writes Societe Generale strategist Albert Edwards, “this is the start of something big, something ugly.
 
“The West has been heaving a sigh of relief over the past few months that deflation pressures have abated somewhat…[But] deflation has only been intensifying in Asia and China [has been] forced by economic reality to participate in competitive devaluation.”
 
US crude oil contracts today hit new 6-year lows beneath $42 per barrel, while US Treasury yields fell back towards last week’s 2-month lows at 2.18% on the 10-year bond.
 
After the Athens parliament on Friday approved ‘austerity’ measures for Greece to get a third bail-out from its Eurozone partners, German chancellor Angela Merkel said Sunday she expects the International Monetary Fund “to take part” in financing the deal.
 
The IMF “knew” in April that Greece was effectively bankrupt, and needed some of its debt written off, claims ex-finance minister Yanis Varoufakis on his blog, also pointing to a New York Times report.

China Doubles Rate of Gold Buying, Yuan Devaluation 'the Big Focus' for Bullion Gains

August 14, 2015
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GOLD BULLION rose near $1120 per ounce in London trade Friday, heading for only the second weekly rise in 8 as China followed this week’s Yuan devaluation by reporting additional gold reserves for the second time in a month.
 
The Yuan rose slightly on the FX market, recouping a little of the week’s earlier 3.5% drop after the People’s Bank of China (PBoC) moved Tuesday to a ‘market determined’ reference rate for its currency.
 
Asian shares held flat, but Shanghai equities closed the week almost 6% higher from last Friday as China’s securities regulator said Beijing may reduce its recent intervention to support the market after this summer’s near 30% plunge.
 
Eurozone stock markets fell again, with Germany’s Dax index dropping 4.5% for the week as the single currency extended its rise on the FX market.
 
Data from the PBoC – central bank in the world’s heaviest gold consuming nation – today said it bought 19.3 tonnes for its bullion reserves during July, reaching above 1677 tonnes in total.
 
“The news is bullish at first glance,” reckons Carsten Fritsch, commodities analyst at Germany’s Commerzbank, “but the monthly volume of 19 tonnes is maybe less than some would have expected.”
 
Many Western analysts and pundits were disappointed by China’s gold reserves update last month, when it said the state’s bullion holdings had grown from 1054 tonnes to 1668 tonne since April 2009.
 
Equaling average monthly buying of 8.2 tonnes, that moved China back into 5th place amongst sovereign state holders, ahead of Russia.
 
Moscow’s average monthly gold buying over the last 6 years has been just below 10 tonnes, taking its gold bullion reserves to 1273 tonnes on end-July’s data.
 
Reporting monthly “is a tough standard,” the Financial Times quotes Matthew Turner in London at Australia’s Macquarie investment bank, “historically [applied] largely [by] the developed economies.
 
“The Chinese devaluation is the right [news] to focus on for the gold market,” Turner also tells Bloomberg.
 
“When central bankers lose control, as the PBoC appeared to do this week, gold tends to do well.”
 
“Gold rose [this week],” says New York analyst Dane Davis at bullion market maker Barclays bank, “because some investors initially thought the [US] Fed would delay [its] rate increase after China devalued.
 
“But that seems to have passed.”
 
Over in Hong Kong, “The Yuan devaluation is making people uncertain about the economy,” Reuters quotes Ronald Leung at Lee Cheong Gold Dealers.
 
“If gold prices hold at current levels, maybe some physical demand will come back a bit.”
 
Bullion premiums above London prices on the Shanghai Gold Exchange – which had spiked to $6.50 per ounce on this week’s Yuan devaluation – today eased back to historical norms at $2.50 on quieter trading volumes.
 
Gold priced in Euros meantime neared the weekend at €1003 per ounce – barely 0.5% higher from last Friday compared with a 2.2% gain for Dollar investors and a 5.2% rise in terms of the Yuan.
 
One Chinese export manager today called the PBoC’s new currency policy “a big bonus”, reports the official Xinhua news agency.
 
“The cheaper Yuan means our products are cheaper,” says another. “We are trying to take advantage of the depreciation and seek a stronger footing overseas.”
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