Gold News

Gold Bullion Slips as Shanghai's New Price Benchmark Matches London's Century-Old Volume

GOLD BULLION prices rose in Shanghai but slipped in London trade Tuesday, retreating $10 per ounce from yesterday's near 2-week highs as European stock markets rose sharply following better than expected GDP data.
 
Economic output across the 19-nation Eurozone grew 1.7% annualized in the first quarter – stronger than first estimated and also ahead of both the US and UK.
 
Edging down to $1237 per ounce, gold bullion also dropped 1% against the single Euro currency, erasing almost all of last Friday's sharp gain for French, German and Italian investors.
 
Chinese Yuan prices for gold bullion has earlier ticked upwards again, fixing at the highest level in more than 2 weeks at Tuesday afternoon's Shanghai Gold Benchmark Price.
 
Launched in mid-April, gold trading volumes at China's twice-daily Yuan gold auction averaged 4.8 tonnes per day during its first month says Jiao Jinpu, chairman of the Shanghai Gold Exchange, in a new article published in English by the World Gold Council.
 
That compares with an average 5.1 tonnes matched each day by the LBMA Gold Price auctions in London, according to data from benchmark administrators ICE.
 
The Bank of Communications today became the fourth Chinese bank to join the LBMA Gold Price auctions, ICE announced, taking the total number of direct participants to 14.
 
Rising from just four members when the century-old London Gold Fixing was updated and formally regulated by the ICE process in March 2015, that still lags the 18 member institutions on the new Shanghai gold "concentration".
 
That new price – found by matching the greatest volume of business through Shanghai's new SHAU contracts – "serves as a benchmark for hedging and settlement" in China's wholesale market, says the SGE's Jiao, "[as well as] in financing arrangements such as gold leasing, pledging and such like."
 
For private investors, he adds, "Commercial banks have started citing the Shanghai Gold Benchmark Price as the basis for their gold accumulation plans and other gold-based wealth management products, while security and fund companies have started to design their own products anchored on the benchmark price."
 
Base metals trading houses and brokers in the West are meantime discussing a possible competitor to challenge the dominant London Metals Exchange according to news-wire reports, with former LME chairman Martin Abbott reviewing "a number of different options...[but] it's really very early days."
 
The parties involved, apparently "feel[ing] abused" in the words of one trader over rising fees at the 140-year old LME, "hope to do a feasibility study within a few weeks," according to Abbott, speaking to Reuters.
 
In the government sector, China's central bank failed to grow its official gold holdings for the first time in at least 10 months in May, new data showed Tuesday, while Beijing's total foreign currency reserves fell to the lowest level since 2011 near $3 trillion.
 
Switching to monthly updates last July after revealing a 57% rise from 2009, the People's Bank held its gold bullion reserves unchanged at 1,808 tonnes last month, even as prices fell 7% from the highest level since January 2015.
 
Gold imports to India – the world's No.2 consumer nation – meantime fell in May for the fourth month running according to Finance Ministry sources quoted by Bloomberg today.
 
More than halving from May 2015 to just 31 tonnes according to the report, India's latest gold imports are finding "hardly any demand" says one dealer in Mumbai's Zaveri Bazaar.
 
"June and July are lean demand months as consumers get busy with agriculture and school activities."

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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