Gold News

China's Gold Price Benchmark Hits Record High as US Fed Vows to 'Sustain Expansion'

GOLD PRICES rose within $3 of a 13-month high in London trade Wednesday, rising as the Dollar fell and world stock markets struggled despite yestersday's 'dovish' comments on US interest rates from the Federal Reserve.
 
Tuesday saw the MSCI World Index make its sharpest 1-day gain since New Year, adding 1.4% after Fed chairman Jerome Powell said the US central bank will "act as appropriate to sustain the expansion" amid the worsening global trade war.
 
US and other major government bond yields sank to multi-year lows, taking Washington's 10-year borrowing rate down to 2.04% and pulling Germany's 10-year Bund yield to minus 0.23%.
 
With Dollar prices rising overnight towards Wednesday's peak near $1344 per ounce, the highest since February's top, Shanghai's benchmark gold 'fix' price – launched 3 years ago – rose to all-time highs, breaking July 2016's top to reach almost ¥297 per gram.
 
Chart of China's gold price benchmark since launch. Source: SGE
 
Converted to US Dollar terms, that put the Shanghai premium, over and above comparable quotes in the world's central bullion hub of London, back up at $14 per ounce after falling to 2-week lows on Tuesday's surge in global prices.
 
That's nearly 60% above the typical incentive for new imports into China, the world's No.1 gold mining, importing and private consumer nation.
 
"Contraction of the Shanghai premium is always good for a short-term boost," notes Charlie Morris of $380m fund managers Newscape in London.
Despite Powell's comments and the rise in gold prices, no major US gold ETF saw any change in the number of shares in issue on Tuesday, leaving the giant SPDR product (NYSEArca: GLD) at its largest size in 2 months after Monday's heavy inflow.
 
Germany's Xetra-Gold ETC was also unchanged, but the quantity of gold held for WisdomTree's London-listed ETF gold trust funds grew 0.4% to the largest since May's retreat from all-time highs above 6 million ounces (186 tonnes).
 
After data from the US Mint showed its sales of gold coins falling 60% in May from April, the Perth Mint in Australia said overnight that its gold bar and coin sales almost halved last month, shrinking to the lowest total since April 2017.
 
Back in the US, "Powell dropped his standard reference to the Fed being 'patient' in approaching any rate decision," says Reuters of the Fed chair's comments in Chicago on Tuesday, helping knock the Dollar to a 7-week low on the FX market.
 
Betting on this month's Fed policy meeting now sees a 30% chance of Powell's team cutting its key interest rate 25 basis points from the current 2.50% when it meets in 2 weeks' time.
 
By this time next year, the heaviest betting on June 2020's meeting now sees Fed rates one whole percentage point lower at a ceiling of 1.50%.
 
Just 0.3% of speculators in CME interest-rate futures expect rates to remain where they are 12 months from now.

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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