Gold News

Gold Price Slips as China Adds Another 16 Tonnes of Bullion, FX Reserves Plunge

GOLD PRICES slipped in quiet trade in London on Monday, retreating near the lowest levels since mid-August at $1119 per ounce as European stockmarkets held flat, ignoring another sharp drop in Asian equities.
 
New data overnight showed China's People Bank growing its gold bullion reserves again in August, extending the growth since end-June's restatement to 2.1%, even as broader reserves fell more than 10%.
 
Crashing since hitting 7-year highs in June, China's stock market drop "is mostly over," said People's Bank governor Zhou Xiaochuan at a central bankers' meeting on Sunday, calling the 35% plunge a "correction".
 
Returning however from last week's Victory Day commemorations, the Chinese stockmarket dropped 2.5% on Monday.
 
"This week's trade and inflation data out of China," says Japanese conglomerate Mitsubishi's analyst Jonathan Butler, "will give a gauge on the scale of the country's economic slowdown.
 
"Any downside surprises have the potential to ignite safe haven bids in gold through a further equity market washout [or] fear of contagion into other economies."
 
Speculative traders in US futures and options last week grew their net long position of bullish minus bearish bets across that group week to the highest level since late June, data from US regulator the CFTC showed Friday.
 
Equal to 241 tonnes, that net long position stood 5% below the last 20-year average, but was barely half the level averaged during gold's decade-long bull market from 2001 to 2011.
 
Open interest in silver derivatives meantime fell 8% last week to reach the smallest level since May 2014.
 
Silver bullion today edged lower to $14.50 per ounce, a new 5-year low when first hit last November by a sharp slump in prices.
 
With Shanghai opening for the first time since Wednesday, Chinese gold prices had earlier "gapped lower on the open to catch up with the FX and international gold markets," notes ICBC Standard Bank, but premiums above comparable London quotes held near $5 per ounce for the main domestic contract, incentivizing wholesalers to import more bullion.
 
The Shanghai Gold Exchange's so-called 'international' contracts however saw zero volume for the second session running.
 
The People's Bank last month added another 16 tonnes to its gold bullion holdings, fresh reserves data said today, again doubling the monthly rate of additions from its 2009-2015 average.
 
Overall however, China's reserves of foreign currency fell by a record $93 billion last month, as the People's Bank intervened to support its Yuan by selling Dollars, Euros and other currencies.
 
At that rate, note analysts at US investment bank Citigroup – and with almost $3.6 trillion still remaining in its FX reserves – the People's Bank could continue the summer's rate of spending to defend the Yuan for 3 years.

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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