Gold News

Gold Bullion 'Very Thin' as US Fed Meets, $2.2bn Failure Hits China's Bond Market

GOLD BULLION held flat in quiet trade Tuesday as the Federal Reserve began its key 2-day September meeting on US interest rates and a court in China approved the first bankruptcy of a borrower in the country's $5.4 trillion interbank bond market.
 
Already rescued by the state-owned China Development Bank in 2015, state-owned metals producer Guangxi Nonferrous filed for bankruptcy in March, and will now be liquidated owing $2.2 billion to 108 creditors, according to the Caixin news service.
 
Interbank dealing in Chinese corporate debt, estimated at 70% of all bonds outstanding in the world's No.2 economy, was opened to foreign institutions this spring, with Western banks keen to give their clients access on what one portfolio manager called " probably the most significant event in the history of capital markets."
 
Gold bullion priced in Yuan held above Monday's 3-month lows on quiet volume at the Shanghai Gold Exchange, but China's official benchmark rose to a premium of more than $5 per ounce above equivalent Dollar quotes in London – more than twice the typical incentive to importers.
 
China's main stock markets meantime edged lower ahead of tomorrow's Bank of Japan and US Fed policy decisions, but European equities rose.
 
Crude oil prices slipped back. Silver bullion held more Monday's extended bounce, but slipped 10 cents from overnight 1-week highs at $19.30 per ounce.
 
"With the Fed unlikely to raise rates and the BoJ prepared to extend stimulus [and] negative rates," says the latest bullion-price analysis from Jonathan Butler at Japanese conglomerate Mitsubishi, "the medium-term outlook remains positive for gold – but it could be a rough ride as Wednesday’s policy announcements are digested.
 
"Any bounce in gold from rates remaining on hold could be eroded by hawkish-sounding wording that keeps a December rate rise in play."
 
"Liquidity is very thin and as such, we will no doubt see a few silly moves, but on the whole...sit back, make yourself comfortable, and wait for the fireworks," says a trading note from financial and gold bullion brokers Marex Spectron in London.
 
"Stocks are saying [the Fed will] hike," says celebrity analyst and trader Jim Cramer at TheStreet, "but all the percentages say there won't.
 
"So if there isn't, I think there's gonna be a really nice rally [in equities]."
 
"It looks like, at a minimum, there's going to be at least a good deal of dissension on the board," notes James Paulsen, chief investment strategist at Wells Capital Management, the wealth division of top US bank Wells Fargo.
 
"We believe the data have met the Fed’s threshold," says a research note from investment and former London bullion bank Barclays, "[and so] retain our outlook for a rate hike in September."
 
But looking at the gold bullion market, a separate Barclays' note says that "Investor concerns about the stability of the global economy, uncertainty in financial markets and a desire to hedge against unexpected events, are unlikely to dissipate any time soon.
 
"Consequently, investor demand for gold, at an all-time high this year, is likely to persist in our view."

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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