Gold Bullion Jumps 2% into 2016 as Oil Surges, China Stocks Sink 7%, 'Stimulus No Answer' Says Xi

Monday, 1/04/2016 15:29

GOLD BULLION began 2016 jumping over 2% against the US Dollar on Monday in London, rising near 1-month highs above $1080 per ounce as global stock markets sank following more weak data from China, the world's second largest economy.

Small and mid-sized manufacturers continued to cut jobs as 2015 ended, the Caixin/Markit PMI survey said, confirming the trend reported by larger factories in the weekend's NBS data.

Lower input costs were again beaten by strong competition forcing lower sale prices, extended the pricing pressures which had seen China's industrial profits fall for the 6th month running in November.

Monday's trading in Shanghai's stock market was suspended after the main index plunged 7%, leading a 3% fall in India and Japan with Europe and North American stocks then losing well over 2%.

Crude oil prices, in contrast, jumped over 4% from end-2015's new 11-year lows amid the fast-widening diplomatic row between Riyadh and Tehran over majority-Sunni Saudi Arabia's execution of a Shiite cleric at the weekend and the protests it sparked in Iran.

India gold prices also jumped as the Rupee fell hard amidst fresh fighting at the Pathankot Air Force base in Punjab, near the Pakistan border, gaining 2.3% to reach 2-month highs at spot exchange rates and offered above INR 25,900 per 10 grams by dealers in Kolkata.

"Worth noting," says a gold price note from bullion and investment bank ICBC Standard Bank, "that in [Chinese Yuan] the daily chart is also looking more constructive as the Chinese currency weakens."

The Yuan today extended 2015's worst annual drop in two decades, sinking to new 4.5-year lows against the Dollar after the manufacturing data.

"China cannot rely on...strong [government] stimulus to achieve [its growth] targets," President Xi Jinping was quoted Friday by Communist Party magazine Qiushi Journal, relaying comments from October's fifth plenum of the 18th party congress.

"China's innovation is not strong enough and the level of technological development is not high enough," Xi went on, urging a stable transition to steadier growth.

Bullion trading on the Shanghai Gold Exchange today saw "a light uptick in volume," says a note from Swiss refining and finance group MKS, but the premium over wholesale quotes in London pushed higher to $6.00 per ounce – well over twice the last 12-month average, and giving dealers a strong incentive to import more metal.

Silver prices initially followed gold bullion higher on Monday, but failed to hold a 4-session high at $14.20 per ounce, easing back to trade 1.3% higher for the day at $14.04 by mid-afternoon in London.

While "the short-term tactical view [suggests] a nascent rally in gold," ICBC Standard Bank goes on, "it will take a lot more US Dollar weakness and/or geopolitical instability to get physical buyers to participate above $1100."

With the US Dollar cutting its earlier losses on the FX market Monday afternoon, gold priced in Euros briefly rose above €1000 per ounce, a level last seen at the start of December.