Gold News

Gold Erases Evergrande Pop But Geopolitics and Financial Debt 'Both Friendly'

GOLD PRICES jumped on Monday, reaching multi-week highs in most major currencies – but then erasing almost all that move against a rising US Dollar – after President Joe Biden pledged to retaliate over Iran-backed militia killing three American soldiers in Jordan, while gold demand in No.1 consumer China held strong amid the liquidation of over-indebted property giant China Evergrande Group, writes Atsuko Whitehouse at BullionVault.
With the US Federal Reserve expected to leave Dollar interest rates unchanged at 2-decades highs in its January policy announcement on Wednesday, gold prices in the US currency climbed 0.9% to $2037 per Troy ounce, reversing the last 2 weeks' decline before dropping back to $2020 around London's 3pm benchmarking auction, a key moment of liquidity in the wholesale bullion market, after Iran sought to distance itself from the drone attack in Jordan.
Shares in Evergrande – the world's most indebted property developer with US$300 billion in liabilities, which began missing debt repayments in September 2021 – meantime fell 20% before being suspended after Hong Kong judge Linda Chan said "enough is enough" following 7 previous extensions since court proceedings were first brought against it by creditors in June 2022.
"[Today's] geopolitical and financial environments are gold-friendly," says the latest daily gold-price and precious metals note from Rhona O'Connell at brokerage Stone X Group Inc.
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This morning's news that a Hong Kong court has ordered the liquidation of Evergrande "put $10 on gold," adds O'Connell, noting how one of her key themes for gold's bull market to continue in 2024 sees "endemic risks" in the banking system via the link to property infrastructure in China and corporate real estate in the US.
"Given [China's] property and stock market slump, global geopolitical instability, and the fall of the Chinese Yuan's exchange rate," says Peng Peng, executive chairman of think-tank the Guangdong Society of Reform, "buying gold is currently the best way for Chinese residents to preserve their wealth."
Chart of China's CSI300 index vs. gold priced in the Chinese Yuan. Source: BullionVault
"The slump in the real estate and stock markets appears to be driving (Chinese) private investors' money into gold," agrees Bruce Ikemizu, chief director of Japan Bullion Market Association.
The benchmark CSI300 index of Shanghai- and Shenzhen-listed stocks fell 0.9% on Monday, trading a little above last week's 5-year low and losing one-fifth of its value in the last nine months.
With Beijing announcing less stimulus to date than many analysts expected, gold prices on the Shanghai Gold Exchange meanwhile rose 0.2% to ¥480 per gram this morning, only 0.6% lower than the all-time high recorded on 15 January and 17.3% higher from the start of last year.
Today's action held the Shanghai gold price $51 per Troy ounce above London quotes. Boosted since last summer by China's government restricting new bullion inflows in the face of heavy demand, that's 9 times the size of the last 5 years' average Shanghai premium, the incentive for new bullion imports into the No.1 consumer market. 
The Yuan lost 2.9% in 2023 against the US Dollar, and it's already fallen by 1.2% so far this year.
China's household gold buying rose 8.8% year-on-year in 2023, according to data released by the China Gold Association (CGA) last week, despite the Yuan gold price hitting all-time highs.
China's gold imports surged in 2023 to a record high of 1,447 tonnes according to data shared with the South China Morning Post, a 7-fold increase from 2020 by weight and 9 times the value of 2020 imports at US$90 billion.
Crude oil also jumped Monday, reaching near 12-week highs during Asian trade after the weekend's deadly drone strikes by Iran-backed militants on US troops in Jordan, plus Friday's news of the first attack on a fuel tanker in the Red Sea during this period of regional conflict started with Hamas' atrocities in southern Israel on 7th October.
"With oil tankers linked to the US and UK now under threat of attack, the market is likely to reprice the risk of disruptions," reckons Daniel Hynes, senior commodity strategist at Australasian bank ANZ.
But crude oil then gave back most of the weekend's gains on Monday, while gold priced in Euros meantime climbed 1.2% to 1-month highs above €1881, while the UK gold price in Pounds per ounce rose 1% to 1-week highs around £1604 before also slipping back but holding much firmer than gold priced in Dollars.
The price of silver, primarily an industrial metal, earlier rose 1.1% to $23.04 per ounce, near a 2-week high, before also retracing all of Monday's move in Dollar terms, back down to $22.80 before rallying 15 cents again as European equities held near their highest in two years.

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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