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Gold Sinks Through $2000, Silver -13% from Last Week's Peak as China Deflation Deepens

GOLD PRICES fell further below $2000 on Monday in London, dropping to 3-week lows more than $160 per Troy ounce beneath last Monday's new all-time high at the start of a busy week of central bank meetings and economic data, writes Atsuko Whitehouse at BullionVault.
China's gold price held firmer overnight, falling only 0.7% to ¥471 per gram and putting the Shanghai premium above London quotes at a 3-week high of $42 per ounce as the world's No.2 economy's deflation worsens. 
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Chart of Shanghai gold price in Yuan per gram and premium/discount to London quotes. Source: BullionVault
The Shanghai gold premium, effectively an incentive for new bullion imports into the precious metal's No.1 consumer nation, dropped to $9 last Monday when gold prices hit a fresh all-time high at ¥480 per gram.
That incentive soared to a historic high for the Shanghai gold premium of $120 in September as imports were restricted by the People's Bank while it eased domestic monetary policy to try reversing China's economic slowdown .
Latest data published Saturday by the National Bureau of Statistics (NBS) shows that China's cost of living fell the fastest in three years in November, down 0.5% from a year earlier, while factory-gate deflation deepened to 3.0%, making the 14th straight month of decline and the biggest since August. 
"Downward pressure will continue to rise in 2024 as developers and local governments continue to deleverage and as global growth is expected to slow," says Xu Tianchen, senior economist for China at the Economist Intelligence Unit, noting that the data would be alarming for Beijing's policy makers.
Rating agency Moody's last Tuesday cut its outlook on China's sovereign credit rating to negative, citing the rising likelihood of greater financial support to weaker regions plus growing risks of lower mid-term economic growth.
Gold prices in the US Dollar meanwhile lost 1.3% to $1982 per Troy ounce by late-afternoon in London, declining 8.5% from last Monday's spike and extending Friday's drop, when the latest data said the US labor market continues to run hot and crushed bets that the Federal Reserve will start to cut interest rates early in 2024.
Gold priced in both Euros and the UK Pound meantime fell over 1.2% to €1854 and £1587 per Troy ounce respectively.
"Stronger jobs number on Friday caused a little bit of a reshaping of expectations for the Fed next year, providing a reprieve to the Dollar and bond yields and that puts some downward pressure on gold, " says one analyst.
The Dollar index – a measure of the US currency's value versus its major peers – edged higher Monday after rising last session, while 10-year US Treasury yields, a benchmark rate for government as well as many finance and commercial borrowing costs, was also fractionally higher, rising for three sessions in a row from 4-month lows.
China's CSI 300 stock-market index ended the day 0.6% higher after falling more than 1% earlier in the day, while European markets were mixed as investors look ahead to a week packed with central bank decisions.
The US Federal Reserve's two-day December policy meeting concludes on Wednesday, widely expected to hold rates steady at a 22-year high for the third consecutive meeting.
The Bank of England and the European Central Bank are also expected to hold their rates unchanged at their meetings on Thursday, when the Swiss National Bank, Norges Bank and the Bank of Mexico will also announce their end-2023 policy decisions, followed by the Bank of Russia on Friday.
The US Consumer Price Index will be released on Tuesday, giving Fed officials the latest inflation data ahead of their policy meeting.
US stock market futures held flat Monday after recording a 6-week winning streak with the S&P500 index rising to a new high for the year.
Gold-backed ETF trust funds meanwhile expanded last week, snapping the usual pattern of ETF holdings rising or falling together with gold prices.
Both the SPDR Gold Trust (NYSEArca: GLD) and the iShares gold ETF (NYSEArca: IAU) saw net investor inflows, expanding by 0.5% and 0.6% respectively.
The IAU's last previous weekly growth came in July – some 20 weeks ago – while the GLD gold ETF's was 2 weeks ago.
iShares' giant silver ETF trust (NYSEArca: SLV) also grew last week, expanding by 0.3% after shrinking 1.8% in November.
Prices for silver, primarily an industrial metal, dropped 4.3% on Monday to $22.77 per ounce, falling over 13.6% from last Monday's peak.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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