Gold News

Gold Prices Hit 2-Week High as China Cuts Interest Rates, India Keeps 10% Import Duty, Western Traders 'Change Behavior'

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.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals