Gold News

Gold Bullion 'Caught in China Storm', Rallies with Equities as Eurozone Splits Over Cutting Greek Debt

GOLD BULLION prices rose Thursday against all major currencies, recovering all but $1 of the week's earlier $20 drop per ounce against the US Dollar as world stock markets gained following a hard bounce in China's main equity indices.
With trading still halted in around half the shares listed on the Shanghai and Shenzen stock markets, the CSI300 index of the biggest companies closed 6.7% higher after the last 3 week's near one-third collapse.
Weaker Eurozone government bonds rallied, while US Treasuries retreated with German Bunds – pushing US and German yields higher – after Athens formally applied yesterday to the European Stability Mechanism for a third bail-out program following last weekend's decisive referendum vote against accepting the lenders' previous offer.
A "hair cut" on Greece's outstanding debts is "out of the question" German chancellor Angela Merkel said today.
But any "realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors," countered European Council president Donald Tusk, echoing comments from fellow creditor the International Monetary Fund's managing director, Christine Lagarde.
Tusk is set to chair Sunday's summit of Eurozone leaders – now expected to end with Grexit from the single currency if a deal can't be reached.
"Euro gold is tightly holding on to the same €1040-1060 range for over 1 month!" says a trading note from the bullion desk at Chinese-owned London dealers ICBC Standard Bank.
Trading volume in Shanghai's main domestic gold contract today halved from Wednesday's 4-month high, but prices closed the session at a 50 cent premium over London prices versus Wednesday's $1.20 discount per ounce.
Shanghai contracts for high-grade kilo bars landed in China – the preferred form of gold bullion for China's private investors – rose $1.30 above London prices today on solid volume.
The city's "international" contract for 0.9999 fine kilobars, in contrast – trading metal held in Shanghai's free-trade zone using Yuan held in offshore accounts – closed Thursday at a discount to world spot prices of nearly $3.70 per ounce, again seeing very weak volume.
"Gold [has been] caught in the storm as investors look for cash to pay margin calls elsewhere," says one London bullion bank in a note, adding that it still sees a strong chance of higher prices "from a re-allocation of funds towards gold in China.
"A recent surge in Shanghai Gold Exchange activity and physical deliveries is pointing to renewed demand" in the world's second largest economy, the note adds.
But "It is much too early to say [for sure], and our own flow from Far-East is not pointing to a broad based activity – certainly not at a large investors' level."
"China is showing what a scramble for cash looks like," says the Financial Times, adding that "the obvious place to look for liquidity was in the country’s commodity futures markets."
" Rout in precious metals," says analysis from Dutch bank ABN Amro, claiming that "gold is not living up to its safe haven status again."
"There is a risk," adds Swiss investment and bullion bank UBS, "that gold's lack of 'traditional' safe haven response could disappoint some participants and weigh further on market sentiment."
US options pricing points to "bearish" sentiment amongst Western speculators, says another London bullion bank in a trading comment, noting that "Puts [are] better at more than 1% premiums over calls."

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 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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