Gold News

Gold Price Jumps, Breaks "Resistance" at $1361 as China Copper Bust Dents Yuan, Raises Euro Deflation Risk

GOLD PRICE resistance at $1361 per ounce, identified by chart-watching technical analysts from gold's October 2013 high, was broken Wednesday lunchtime in London, as world stock markets fell and industrial commodities sank, led by a 5% drop in copper in China.
 
Spiking to 6-month highs for Dollar investors at $1366, the gold price outpaced a rise in the Euro to hit new 4-month highs against the single currency.
 
UK investors buying gold today also saw the price hit its highest level since early November at £822 per ounce.
 
The gold price in Shanghai rose overnight, but widened its discount to London by $2 per ounce, ending the day $4.30 cheaper as the Chinese Yuan fell back towards last week's 6-month lows vs. the Dollar.
 
Now the world's No.1 gold consumer nation, China has seen Beijing allow the Yuan to fall 1.5% against the Dollar in the last month, driven by " intense anger with the Japanese," according to the Financial Times.
 
Japan's aggressive QE money-printing has devalued the Yen by 25% since late 2012, aiming to end two decades of deflation and make Japanese exports more competitive.
 
"The markets were spooked by [yesterday's China] export data," Bloomberg quotes one trader at Sucdens in London, adding that Asian brokerage Nomura expects the People's Bank to ease reserve requirements for Chinese lenders in the face of a growing credit crunch.
 
"If [Thursday's] retail sales and industrial production come in iffy, it won't look good."
 
Sometimes called "Dr.Copper" by economists for pointing to the direction of economic growth ahead, copper prices today hit the lowest price in Shanghai since 2009.
 
With China's regulated bond market suffering its first non-payment last week, a US scrap copper dealer "has [also] suffered large losses" in the last week, reports Reuters, due to a Chinese buyer defaulting on a purchase.
 
"Amid the turmoil in Ukraine," says the latest Cross Asset Strategy note from French investment and bullion bank Societe Generale's analyst Albert Edwards, "China's move to weaken the Renminbi didn't get as much focus as perhaps it should have."
 
Despte the falling Yuan, the gold price on Shanghai's most active contract has added only 0.5% since the start of March, thanks to its usual premium to world prices turning negative.
 
"If the Chinese move is the start of a devaluation," writes Edwards, "this will send a far-reaching deflationary impulse to the US and Europe when they least need it."
 
Setting monetary policy for the 330-million citizen Eurozone, the European Central Bank "is ready to use non-standard tools to deliver stable prices," one board member said today, referring to quantitative easing as a way of reducing the Euro's currency rate and trying to avert consumer-price deflation.

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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