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Gold Bullion Premium in Shanghai Goes Negative as China's Yuan Sinks, World Stock Markets Rise

GOLD BULLION prices in China today fell below the world's London benchmark for the first time since November as the Yuan sank at its fastest pace in 3 years on the currency markets.
Despite rising 0.8% in Yuan terms, the most active contract on the Shanghai Gold Exchange closed Tuesday at a discount of $3.60 per ounce to London spot.
That compares with the Shanghai premium's 3-year highs above $50 per ounce hit when world prices first sank to $1180 last summer.
Shanghai's gold trading volumes today nearly doubled yesterday's levels by value, just lagging last Monday's 3-month high, while the city's stock market dropped 2%.
World stock markets in contrast rose to 6-year highs overall on the MSCI index, with Japan's Nikkei adding 1.4%.
Priced in US Dollars, spot gold bullion prices for London settlement rallied from a brief dip to recover $1337 per ounce, a fraction shy of yesterday's new 4-month highs.
Silver prices continued to slip, however, edging back below last week's finish at $21.85.
"I think the price is a little bit too high for Asians to buy gold," said Standard Bank's Tokyo manager Yuichi Ikemizu at the weekend.
"Because we were below $1300 for a long time, and people bought a lot."
Gold bullion imports through Hong Kong to mainland China eased 5% in January to below 90 tonnes net, new data from the Hong Kong Census and Statistics Department said today.
Full-year 2013 imports totaled a record 1,108.8 tonnes net of re-exports. China's identified end-consumer demand last year overtook India's to become the world's No.1.
"The Chinese were sellers once again on the SGE open," says a note from Swiss refining and finance group MKS's Asian desk.
Noting the first Shanghai discount on gold bullion "for a long time", that drop below global prices "drew out more selling" it adds.
"The Yuan move has some relation to the slowdown in the Chinese economy," reckons Societe Generale strategist Alvin Tan, "but it looks more that it has been orchestrated by the PBoC [central bank]," either by selling Yuan or encouraging rumors that it will.
Falling Tuesday for the 6th session running, and hitting new all-time Dollar highs only in January, the Yuan today hit a 6-month low.
"[That's] wiped out pretty much all of the speculators' recent gains" in the Chinese currency, Tan tells Reuters.
Gold bullion holdings at the Central Bank of Turkey meantime showed a drop of 31.2 tonnes for January on new IMF data, equal to a 6% cut in its physical reserves.
The world's fourth largest consumer market for gold, Turkey has seen its official bullion reserves rise 4-fold in the last 2.5 years, thanks to new rules allowing commercial banks to hold some of their capital requirements as gold on deposit with the central bank.
Retreating to 488 tonnes on data for January – which ended with the central bank hiking interest rates sharply to pull the Lira higher from all-time lows on the currency market – Turkey's official gold bullion holdings remained the world's 11th largest.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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