Gold Prices Hit 2-Week High as China Cuts Interest Rates, India Keeps 10% Import Duty, Western Traders 'Change Behavior'
Monday, 3/02/2015 13:18
GOLD PRICES halved an early spike in Asian trade Monday morning, retreating from 2-week highs after China's central bank cut interest rates for the second time in 3 months.
World stock markets edged higher as the Yuan fell to a 2-year low against the Dollar and major commodities slipped a further 0.5% overall.
New PMI data today said activity in China's manufacturing sector fell in February for the second month running.
The People's Bank of China on Monday
cut its benchmark lending rate to 5.35% and cut its deposit rate by the same 0.25 percentage points to 2.5% per year.
Dollar gold prices touched $1222 per ounce before retreating to $1218, and Euro prices hit 3-week highs.
Trading in Shanghai's "international" gold kilobar contract – fee-free to foreign bank members of the Exchange since end-December – hit a new record level, almost matching volume in the domestic 'four-nines' equivalent.
Despite the fall in the Yuan, the price of Shanghai's main domestic gold contract rose to a premium of more than $4 per ounce compared to London quotes, offering a greater incentive to Chinese gold importers.
Gold inflows to India – the world's heaviest consumer nation
for some 2,000 years – will continue facing 10% import duty after Saturday's new government Budget disappointed jewelers hoping for a cut to 6% or even 2%.
Finance minister Arun Jaitley instead listed 3 measures aiming to "mobilize" some of India's existing 20,000-tonne private holdings.
Gold-deposit accounts at commercial banks, like government-issued gold-tracking investment bonds, have
been tried before with no success. New Delhi will now also mint a gold bullion coin to compete with foreign products.
Meantime in
US gold futures and options contracts, speculative betting fell last week to a new 2015 low net of bearish bets, new data said late Friday, down 40% by value from end-January's sudden 2-year high.
The 'net spec long' in silver futures and options also fell hard according to the
CFTC regulator's latest Commitment of Traders data, hitting a 7-week low fully one-third smaller from end-January's six-month peak.
But "investor positioning currently suggests gold is not all that unloved," says a note from Australian bank ANZ, noting that while "long liquidation has occurred...there has been very little addition of new short positions.
"This is different to previous cycles where significant gold weakness coincided with elevated short positions. Longs have simply taken profits."
"What is interesting," adds Mitsubishi analyst Jonathan Butler, looking at this year's rise in exchange-traded gold trust fund holdings, "is that ETF investors held onto positions during February when prices fell, rather than liquidating holdings in line with price declines – the more usual behaviour."
Now standing 10% greater by weight from January's fresh 7-year low, the quantity of metal needed to back shares in the largest gold ETF – the SPDR Gold Trust (NYSEArca:GLD) – saw "momentum investing at work" as its holdings grew sharply at New Year, says Butler.
"The three largest daily inflows coincided with...some of the largest daily gold price movements of the year" so far.
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