Gold News

China Gold Premiums Jump as Fear of the Fed Whacks Dollar Price

GOLD PRICES hit new 2023 lows Friday, attracting strong demand in No.1 consumer nation China, as silver fell to the cheapest since end-November against a rising US Dollar.
Global stock markets and fixed-income bond prices also fell amid resurgent fears of steeper Federal Reserve interest rate hikes ahead.
Down 2.5% and 4.2% for the week respectively at this morning's lows of $1820 and $21.20 per ounce, gold and silver prices then rallied slightly as global stock markets also trimmed their losses but left the MSCI World Index unchanged from last Friday's finish.
Commodities and energy prices sank further, knocking almost 5% off crude oil from this time last week and more than 10% from this time last year, eve of Russia's invasion of Ukraine.
Erasing all of 2023's earlier 7% rise in Dollar terms, gold bullion today found strong interest on the Shanghai Gold Exchange, with the city's premium over comparable London quotes rising near $35 per ounce, the highest incentive for new imports into gold's No.1 consumer nation in more than 3 months.
Chart of Shanghai gold premium (US$/oz) vs. gold price in Yuan. Source: BullionVault
That means Shanghai gold has averaged more than $19 per ounce above London quotes so far in 2023, almost 4 times last year's $5 average across the 3 weeks prior and 3 weeks following the heavy gold-buying festival of Lunar New Year holidays – now the world's heaviest consumer gold-buying event, ahead of Diwali in India.
In 2021 the Shanghai gold premium averaged barely $3 per ounce to this point in February, down from $4 in 2020 and $10 in 2019 on data compiled by BullionVault.
Data from the mining-industry's World Gold Council says 2023 has so far seen the strongest Shanghai gold premium since 2011.
"We will we stay the course until our job is done," New York Fed president John Williams said in a speech to bankers on Tuesday, echoing chairman Jerome Powell's own comments on rates needing to stay 'higher for longer' to defeat inflation and avoid a replay of the late-1970s' rebound under his predecessor Arthur Burns.
Following stronger-than-expected US inflation and economic data, non-voting Fed member James Bullard of the US central bank's St.Louis branch yesterday said he's open to a half-point hike at the March meeting, backing Wednesday's comments from voting member Loretta Mester of the Cleveland Fed over what she felt was a "compelling" case for that kind of hike at this month's vote.
After the Fed raised by only 1/4-point on 1 February, betting on a half-point hike has now jumped to 1-in-5 among interest-rate speculators, according to the CME derivative exchange's FedWatch tool, its highest in 5 weeks.
With leading 'dove' Lael Brainard leaving the Fed to become top economic advisor to President Biden in the White House, "[this] raises the risk of a recession," the Wall Street Journal quotes one forecaster, "because it could lead the central bank to raise rates more aggressively this spring."
The 'recession warning' of on inverted yield curve continued on Friday, with the yield on both 6- and 12-month Treasury debt rising above 5.0% per annum while 10-year yields reached only 3.88%, signalling market expectations that interest rates will have to fall sometime in late 2023 or early 2024.
China meantime this week saw mass protests in at least 2 major cities, with thousands of elderly demonstrators facing lines of police while chanting "down with the reactionary government" and singing Communist anthem 'The Internationale' to oppose cuts to health-insurance benefits imposed by cash-strapped local authorities.
The protests follow the widespread and sometimes violent anti-Zero Covid unrest which led Beijing to abandon the policy this New Year.
Newly-built houses in 56 of China's 70 largest cities cost less in January than in the same month last year, new figures from the Communist regime's official NBS data agency said Thursday, and the price of existing homes prices fell in all but five.
China's real-estate downturn has led some banks to offer mortgages to elderly borrowers aged 70 and above, CNN reports, quoting analyst Yan Yuejin at property services firm E-House China Holdings.
"Basically, it's a policy tool to stimulate housing demand," he says of these so-called "relay loans", which pass the debt onto the home buyer's children when the borrower dies.

Adrian Ash

Adrian Ash, BullionVault Gold News

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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