Gold Bullion 'Very Thin' as US Fed Meets, $2.2bn Failure Hits China's Bond Market

GOLD BULLION held flat in quiet trade Tuesday as the Federal Reserve began its key 2-day September meeting on US interest rates and a court in China approved the first bankruptcy of a borrower in the country’s $5.4 trillion interbank bond market.
Already rescued by the state-owned China Development Bank in 2015, state-owned metals producer Guangxi Nonferrous filed for bankruptcy in March, and will now be liquidated owing $2.2 billion to 108 creditors, according to the Caixin news service.
Interbank dealing in Chinese corporate debt, estimated at 70% of all bonds outstanding in the world’s No.2 economy, was opened to foreign institutions this spring, with Western banks keen to give their clients access on what one portfolio manager called “probably the most significant event in the history of capital markets.”
Gold bullion priced in Yuan held above Monday’s 3-month lows on quiet volume at the Shanghai Gold Exchange, but China’s official benchmark rose to a premium of more than $5 per ounce above equivalent Dollar quotes in London – more than twice the typical incentive to importers.
China’s main stock markets meantime edged lower ahead of tomorrow’s Bank of Japan and US Fed policy decisions, but European equities rose.
Crude oil prices slipped back. Silver bullion held more Monday’s extended bounce, but slipped 10 cents from overnight 1-week highs at $19.30 per ounce.
“With the Fed unlikely to raise rates and the BoJ prepared to extend stimulus [and] negative rates,” says the latest bullion-price analysis from Jonathan Butler at Japanese conglomerate Mitsubishi, “the medium-term outlook remains positive for gold – but it could be a rough ride as Wednesday’s policy announcements are digested.
“Any bounce in gold from rates remaining on hold could be eroded by hawkish-sounding wording that keeps a December rate rise in play.”
“Liquidity is very thin and as such, we will no doubt see a few silly moves, but on the whole…sit back, make yourself comfortable, and wait for the fireworks,” says a trading note from financial and gold bullion brokers Marex Spectron in London.
“Stocks are saying [the Fed will] hike,” says celebrity analyst and trader Jim Cramer at TheStreet, “but all the percentages say there won’t.
“So if there isn’t, I think there’s gonna be a really nice rally [in equities].”
“It looks like, at a minimum, there’s going to be at least a good deal of dissension on the board,” notes James Paulsen, chief investment strategist at Wells Capital Management, the wealth division of top US bank Wells Fargo.
“We believe the data have met the Fed’s threshold,” says a research note from investment and former London bullion bank Barclays, “[and so] retain our outlook for a rate hike in September.”
But looking at the gold bullion market, a separate Barclays’ note says that “Investor concerns about the stability of the global economy, uncertainty in financial markets and a desire to hedge against unexpected events, are unlikely to dissipate any time soon.
“Consequently, investor demand for gold, at an all-time high this year, is likely to persist in our view.”


This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. This report was produced in conjunction with ABC Bullion NSW.

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