Gold News

China's Demand to Buy Gold at Issue as Trade Deficit Shocks Analysts, Shanghai Trading Jumps

BUY GOLD bids in London  helped the price recover an early 0.9% fall Monday morning, rallying above last Friday's PM Fix of $1335 – the highest Friday close in 23 weeks – as China and other Asian stock markets closed sharply lower.
 
New data at the weekend showed China's trade surplus plunging from above $31 billion in January to a deficit of $23bn last month on an 18% drop in exports.
 
"The scale of the decline was truly surprising," says a note from French bank BNP Paribas. "It reawakens fears of a Chinese slowdown."
 
February marked China's first trade deficit since March 2012.
 
"I think some emerging economies may be submerging soon," said Swiss money manager and Hong Kong resident Marc Faber in an interview last week.
 
"The question arises, 'Will they continue to buy gold? If the Chinese economy imploded, it is likely that the currency, the Yuan, would begin to weaken, or the government would devalue.
 
"I think that Chinese investors would shift some of their money into gold rather than keep their funds in the local currency."
 
The China Gold Association, in contrast, sees domestic demand to buy gold falling this quarter compared to the record level of January-March 2013, according to Bloomberg.
 
Forecasting a 17% drop by weight, "Last year was a peculiar year when we saw a big fall in prices," says Zhang Yongtao, vice-chair of the producers, refiners, wholesalers and retailers body in the world's No.1 gold mining and consumer nation.
 
"People bought a lot of gold, and I think demand will start climbing again once the festive and marriage season begin later this year."
 
Trading in Shanghai's most active spot gold contract today jumped to a 6-month high by value, equal to more than 50 tonnes by weight, as the Yuan dropped on the currency markets back towards last week's new 6-month lows to the Dollar.
 
Shanghai's local price to buy gold, typically quoted at a premium to the international guide of London settlement, held at a discount of $3.20 per ounce.
 
"Orderly default is possible," says analysis of China's credit market from Barclays Capital, "and would be a good first step for reform in our view."
 
Last week's default by Shanghai Chaori Solar Energy Science & Technology Co. – the first non-payment on a regulated bond since the People's Bank took over two decades ago – will see the company raise cash by selling foreign assets, press reports say.
 
Having $14 million of interest payments, "Potential buyers aren't determined yet," says vice-president Liu Tielong. But valued at some $165m in total, solar plants being offered for sale in Greece, Bulgaria and Italy "are worth more than enough to cover the bond interest."

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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