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China Uncertainty "Driving Gold Prices" Says SocGen

Gold prices likely to spike, fall back, if China hits "hard landing"...
 
GOLD PRICES are being increasingly led by uncertainty over China's economic growth and stability, according to research from French investment and London bullion bank, Societe Generale.
 
Summarizing gold-price analysis first published last month in his team's 2014 outlook, Dr.Michael Haigh, head of commodities research, writes that the relationship between China uncertainty – as measured by an index of relevant articles in the South China Morning Post – and US Dollar gold prices "became significant in the summer of 2011.
 
"In August 2013, the relationship rose to levels never seen before."
 
Barron's magazine, noting last year's sharp rise in Chinese gold consumption to new record levels, adds that "China's demand for gold suggests a desire for a reliable store of value, not just as a hedge against a decline in the Renminbi, but also because of internal credit problems.
 
"Wealthy Chinese are trying to get their money out of the troubled domestic economy, and are increasingly investing in gold."
 
SocGen's research also surveys 100 investment clients of the bank, and contrasts their outlook for gold prices and other assets if China uncertainty leads to a "hard landing" against the same survey's results from January 2013.
 
Whereas 12 months ago, before the 2013 crash in gold prices, respondents thought gold could drop 5% if China's economic growth slowed to a stall, now the outlook would be for flat prices overall, but within "a possible range of gold +29% to -30%."
 
Dr.Haigh agrees with that direction for prices, saying gold "would first rise on a flight to quality, and then fall as Chinese demand flagged."
 
Doubts over Beijing's policy response to a hard landing, however, could "underpin" gold prices in line with the uncertainty research above. "A 20% increase in uncertainty could drive gold prices 3% higher," SocGen concludes.

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