Gold News

Gold Price 'Favors Break to $1300' as Shanghai's Offshore Yuan Trading Leaps Again, Widens Discount to London Price

GOLD PRICES bounced from a retreat near last week's closing level lunchtime Wednesday in London, rallying as US stock markets opened the day higher but European equities retreated from a new record high.
 
With the Dollar rising ahead of today's release of minutes from the US Federal Reserve's March policy meeting, wholesale gold recovered $5 per ounce from $1205.
 
The Shanghai Gold Exchange's international contract earlier closed its busiest session yet at a $1.70 per ounce discount to London quotes, having traded 3 times as much value as the bourse's formerly dominant domestic Au(T+D) contract.
 
SGE international contracts allow domestic and foreign institutions to trade Yuan held in offshore accounts for metal stored in the city's free-trade zone.
 
Despite expectations that the Chinese Yuan may be accepted as part of the IMF's official basket of reserve currencies later this year, "A recent survey by HSBC showed usage of the Yuan in the United States, UK, France and Germany has weakened sharply in 2015," says Reuters, linking the decline to China's slowest economic growth in two decades.
 
Data compiled by Australia's Macquarie Bank meantime suggest China's commercial banks grew their gold holdings by perhaps one third to 1,835 tonnes in 2014.
 
That possible 450-tonne addition to commercial bank stockpiles compares with a 740-tonne excess of China's reported 2014 mine supply plus net imports over household demand.
 
"On a quarterly basis," says Macquarie analyst Matthew Turner, "the increase in gold held by the commercial banks matched well the swings in China's imports of gold."
 
Looking at Dollar prices, "Gold has achieved our target of $1223 and could be forming an inverted head and shoulders," says a technical analysis from London market maker Societe Generale, pointing to a potentially bullish chart pattern.
 
"The [upwards] channel support at $1195 should limit pullback, if any."
 
"While trading above the late March low at $1178," says a technical note from Germany's Commerzbank, "the odds favour a break higher towards the $1300 mark being made within the next few weeks."
 
"Dollar moves and [trader] positioning will be key drivers for the metals in the short term," says a trading note from Swiss refining and finance group MKS.
 
"We see the Dollar as merely resting before it moves higher again," says G10 strategist Steven Barrow at Standard Bank, now branded as ICBC Standard Bank, after China's largest bank acquired 60% of the former South African bank's London unit in February.
 
"It's only once the Fed has got the first rate hike out of the way that we might see a more durable 'sell the fact' reaction in the greenback."

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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