Gold News

Gold ETF Investing Weak with China Demand as Prices Hold Inflation Jump

GOLD PRICES held unchanged in London on Thursday, trading in line with last weekend's 5-month highs for Dollar investors as global stock markets slipped for a second day running and both Western ETF investors and major gold consumer nations showed signs of weaker demand in the face of last week's US-inflation-data spike in bullion costs.
 
With gold priced in the Dollar at $1865 per ounce, UK gold prices held below €1385 while Euro and Yen gold prices remained near their highest on record at €1645 per ounce and ¥6,850 per gram respectively.
 
The giant SPDR Gold Trust (NYSEArca: GLD) expanded yesterday for the first time this month, but only by 0.9 tonnes as its shares in issue grew by less than 0.1%.
 
The smaller iShares gold ETF – the IAU product – was meantime unchanged in size yet again following the shock US inflation data which sent gold prices up through "key" technical levels. 
 
Chart of GLD + IAU size (tonnes). Source: BullionVault
 
Gold prices in No.1 consumer market China on Thursday edged back up towards last week's 5-month highs in Yuan terms, but they slipped compared to quotes for settlement in London, heart of the global bullion market.
 
The price gap between London and Shanghai eased from a weak $2.65 per ounce to just $1.20, suggesting weak local demand in the face of the precious metal's sudden jump.
 
Gold No.2 consumer nation India – where domestic prices have shown a premium to London on only 9 days since the start of July – meantime saw shares in giant e-payments provider Paytm (NSE: PAYTM) crash by 1/5th on today's stock-market debut, Mumbai's largest-ever IPO, slashing over $5bn off the company's value to the equivalent of US$13.5bn.
 
Called a "cash guzzler" that lacks "focus and direction" by some bank analysts, Paytm hasn't joined the gold-loan boom enjoyed by other non-bank financial companies in the world's 2nd most populous country – a market where consumer borrowing backed by pledging jewelry or other gold items is now worth well over US$60bn in total.
 
Growing by 66% over the last year for bank lenders, gold loans have surged to fresh all-time highs for the much larger non-bank gold loans business.
 
The central bank of gold No.5 consumer nation Turkey meantime slashed its key interest rate to 15.0%, citing "the transitory effects of supply-side factors" on sending inflation up toward 20% and sending the Lira down to fresh record lows on the FX market.
 
Now down by 30% against the Dollar from this time last year, the Lira is worth less than half its USD rate of November 2018.
 
That has helped drive the gold price for Turkish investors and consumers almost 50% higher so far in 2021, setting fresh all-time highs today.
 
"We will save our people from the scourge of interest rates," said Turkey's president Recep Tayyip Erdoğan to his political party yesterday, denying any influence over the "independent" TCMB but yet again blaming inflation on high borrowing costs and saying that "There is no other way."
 
The TCMB has now slashed its key interest rate by 4 percentage points since September despite inflation in consumer costs rising to 19.9% per year, the highest since the current steep decline in the Lira's exchange-rate value began in 2018.

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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