Gold News

Gold Price 'Critical' on Drop Through $1100, Erases 2015 Euro Gain on China Fears, Bearish Bets, Miner Hedging

GOLD PRICES fell below $1100 per ounce for the first time in exactly a month Friday afternoon in London, losing almost 2% for the week as world stock markets also fell with commodity prices.
 
Priced in the Euro currency – which rose for the 3rd day running on the FX market – gold meantime fell to €975 per ounce, erasing the last of 2015's previous 20% gain.
 
"On a very long-term scale," says one Hong Kong dealing desk in a note, "current levels look critical for gold [after] the price [in mid-July] held the 50% retracement of the rally from the mid-1999 low to the September 2011 peak."
 
Looking at US gold futures trading, the note adds, "The increase in [Comex] open interest...coupled with the drop in price, suggests that speculators betting on declines in the gold price have increased their positions again quite aggressively, or strongly outweighed fresh longs."
 
Physical gold bullion is seeing "decent demand in the low $1100s," said traders at Swiss refiner and finance group MKS earlier Friday, "[but] producer selling seems to be capping the rallies."
 
Gold miner hedging – where producers borrow metal to sell some future output at current levels, locking in today's prices for fear of a drop – "could be approximately 50 tonnes" in 2015, reckons Robin Bhar, precious metals analyst at French investment and bullion bank Societe Generale in London, "a reversal of the de-hedging of last year."
 
Overall, Bhar says, physical mine output could fall from 2014's record high by 6% this year "due to lower prices."
 
Gold prices in China – the world's No.1 consumer market – today closed higher in Yuan terms on the Shanghai Gold Exchange, but cut their premium to the world's benchmark of quotes for London delivery to the equivalent of just $1.60 per ounce.
 
That reduced the incentive for new imports from last week's peak of $6 per ounce, around the highest levels seen in 2015 so far.
 
Official data on Friday showed China's new banking loans almost halving last month from July's fresh record, while the M2 measure of banking deposits continued to increase at 13.3% per year.
 
"Given a buildup of bad debt on their books," the Wall Street Journal quotes economist Larry Hu at Australia-owned bank Macquarie, "Chinese commercial banks are more cautious in extending credit this year.
 
"But China's [government-owned] policy banks, like China Development Bank, are expected to play a more important role in pumping credit to support the cooling economy."
 
Concerns over China's weakening economy today led analysts at both US investment bank Goldman Sachs and German banking giant Commerzbank to cut their crude oil price forecasts again.
 
Crude oil prices fell 2.5% on Friday. Silver failed to extend its outperformance of gold, tracking the heavier metal's sharp drop to hit sudden 2-week lows at $14.33 per ounce – midway between last Friday's finish and the previous week's new 6-year low at $14.00 per ounce.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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