Gold News

Gold Price Trading $100 Off Top as Role of Chinese Speculators Makes Headlines

The GOLD PRICE traded $100 below this month's new all-time record high of $2430 per Troy ounce in London on Wednesday, steadying from the past fortnight's volatility as long-term interest rates rose, Western stock markets slipped, and major news outlets caught on to the impact of speculative trading in Shanghai gold futures and options.
"Gold's record-setting rally  may have its roots in Chinese frenzy," says Bloomberg today.
"Chinese  speculators super-charge gold rally," agrees the  Financial Times, also highlighting data from the Shanghai Futures Exchange.
"Gold price sets record 8th record in a row  amid China 'speculation and hype' warnings," said BullionVault more than 2 weeks ago, adding last Wednesday that " China's gold investment [is] 'strong' on mixed data at $2400" and pointing to " SHFE options trading" last Thursday.
Chart of London bullion price in US Dollars, last 5 years. Source: BullionVault
Shanghai Gold Exchange prices today rallied to ¥548 per gram at the city's afternoon benchmark auction, 1.0% above Tuesday's 3-week low and holding the premium over London quotes – effectively the incentive to import bullion into  the world's No.1 gold consumer nation – at $25 per Troy ounce, more than 3 times the long-term historical average.
Gold bullion in London then fixed above $2300 per Troy ounce for the 13th session in a row Wednesday afternoon, showing a 13.3% gain since this move began at the end of February, when Russia's President  Putin said that Nato's support for Ukraine "risks"  nuclear conflict.
Silver rallied close to $27.50 per ounce, over 80 cents above yesterday's 12-session low, after fixing at London's midday benchmark 21.2% higher from the start of March.
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Shanghai silver premiums had earlier held above $3 per ounce after reaching the smallest in 2 weeks. That incentive for new imports has now averaged 10.0% versus London quotes across the past 6 months.
"Chinese speculators have really grabbed gold by the throat," the FT quotes market strategist John Reade at the mining industry's World Gold Council.
"Emerging markets have been the biggest end consumers for decades but they haven't been able to exert pricing power because of fast money in the west.
"Now, we are getting to the stage where speculative money in emerging markets can exert pricing power."
"Samson Li, a Hong Kong-based analyst at Commodity Discovery Fund, sees a more nuanced picture," says Bloomberg.
"Rather than being a direct driver of prices, the frenzied demand in China has encouraged western speculators to ramp up  bets on [gold derivatives] gains in New York."
Asian stock markets jumped overnight but European and American bourses fell Wednesday after new US data said the world's largest economy saw a smaller-than-expected jump in durable goods orders last month, raising doubts over the already lower consensus outlook for tomorrow's first-quarter GDP report.
Western government bond prices also fell however, driving long-term borrowing costs higher – and with inflation-protected 10-year US yields hitting the  highest since November – ahead of the US Treasury selling a record $70 billion in 5-year debt later today.
China's long-term borrowing costs meantime jumped but from historic lows after Beijing's central bank warned against betting on  continued weakness in the world's 2nd largest economy.
Due to its weak growth and poor financial markets boosting household and investment demand for bullion, "China is driving up global gold prices," said Newsweek fortnight ago as the precious metal set its current all-time high.

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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