Gold News

Gold's Price Discovery 'Moving to Shanghai' as US Inflation Slows, China Readies 'Fiscal Stimulus'

The GOLD PRICE spiked back to last Friday's 3-week high of $2378 on Wednesday after new US inflation and retail-sales data said the world's No.1 economy is slowing.
 
The Communist government of No.2 economy China – where gold prices today traded $32 per Troy ounce above London quotes, four times the historical incentive for new bullion imports to Shanghai – was meantime preparing to borrow heavily to fund extra fiscal stimulus.
 
With Chinese demand surging in 2024 while Western gold investing has fallen in the face of record-high prices and the highest cash interest rates in 2 decades, "Has price discovery in the gold market moved East?" asks analyst Bernard Dahdah at French investment bank Natixis.
 
"Our view is that this isn’t totally the case yet, but we are starting to see evidence of a point where the...Shanghai market has enough weight to dictate the price of gold alongside more traditional drivers (such as US rates and yields)."
 
Chart of China's gold jewelry, coin and small-bar demand. Source: BullionVault
 
"Despite Western outflows of gold from physically-backed ETFs due to [today's] high interest rate environment," says Natixis' Dahdah, "gold prices have hit record highs.
 
"We attribute this to the Shanghai market evolving from the market of last resort (as was the case in 2013) to a significant price driver" thanks to its central-bank buying, Chinese consumer gold demand and speculative trading in China's gold futures market.
 
Over in the USA on Wednesday, the Dollar value of retail sales came in unchanged for April data versus March's figure, the Census Bureau said, defying analyst expectations for a third month of expansion.
 
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Consumer price inflation meanwhile slowed one tick to 3.4% per annum from March's 6-month high, with 'core' inflation excluding fuel and food hitting its weakest in 3 years at 3.6%.
 
The data saw market expectations for year-end interest rates at the Federal Reserve sink to 4.87% per annum, the lowest in 5 weeks and suggesting at least 2 rate cuts by the US central bank before Christmas.
 
Beijing, in contrast, is already holding Chinese interest rates at historic lows. But with the Yuan trading close to 15-year lows, "China's monetary policy is constrained by concerns over currency stability and capital outflows," says Natalie Scott-Gray, senior metals analyst at brokerage StoneX.
 
So while the world's 2nd largest economy and No.1 gold consumer "remains on the cusp of deflation," Scott-Gray says, "fiscal policy is to be favoured, with the Politburo calling for faster issuance of special sovereign and local government bonds" starting with a massive ¥1 trillion bond issue ($140bn) starting this Friday.
 
"Only the fourth time in 26 years of such an issuance," the StoneX analyst says, this borrowing and resulting infrastructure spending will be "supportive to higher growth" and therefore to base metals demand too.
 
US copper futures contracts today hit a new all-time high above $5 per pound as the latest failed bid from giant global miner BHP Billiton (LON: BHP) to buy natural resources conglomerate Anglo American (LON: AAL) saw the target firm announce it will divest and demerge its De Beers diamonds division and platinum-group miner Amplats (JSE: AMS).
 
Trading one-third below end-2021's record highs, China's CSI300 stock index today slipped for the 3rd session running, closing at its lowest level in May so far and dropping 1.1% from last Friday's 7-month high.
 
Developed-market equities, in contrast, edged up to beat late-March's all-time record high on the MSCI World Index, rising further as US interest-rate expectations fell following the inflation and retail sales data.
 
Platinum prices meantime rose yet again amid London's annual Platinum Week, hitting a 12-month high above $1060 per Troy ounce and continuing to trade above sister metal palladium, which spiked before slipping back below $1000.
 
With gold edging back $10 from Wednesday's earlier spike, silver prices also dropped after popping above $29 for the 4th time in 5 weeks, trading more than 32% higher from this point only 3 months ago.
 

Adrian Ash

Adrian Ash, BullionVault Gold News

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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