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Gold Prices Up 17% for 2014 as Beijing "Clamps Down" on China Credit Bubble, Crimea Vote Looms for Ukraine

GOLD PRICES leapt in London trade Friday, rising 3.3% from last week's finish to touch the highest level since early September at $1385 per ounce.
Market watchers pointed variously to the ongoing Ukraine crisis and a sharp clampdown on bank lending and unregulated credit in China.
Silver also leapt Friday, finally bucking this week's trend to overtake gold prices with a 4.1% gain just shy of $21.80, a 3-week high.
That quickly pushed the ratio of gold to silver prices lower, down below 64 from a 6-month high above 65.
World stock markets fell, commodities ticked higher and major government bonds rose in price, pushing interest rates down.
Japan's Nikkei index has now lost more than 12% for 2014 to date.
Hong Kong equities have dropped 10% from December's 2-year highs.
Gold priced in US Dollars stood 17% higher on Friday afternoon from the 3-year lows hit last June and again on New Year's Eve.
"Uncertainty surrounding the Ukraine crisis seems to have had a more lasting effect on gold than on oil so far," says Swiss investment and bullion bank UBS.
Ahead of Sunday's vote on secession from Ukraine by Crimea, the BBC today reports violent clashes in the eastern city Donetsk, centre of Ukraine's most productive region where pro-Russian protesters fought with police overnight.
"While the push higher is attracting greater gold investment demand," says London market maker HSBC, "higher prices may be cooling emerging market physical appetite."
Shanghai gold prices ended Friday at a discount of $6.70 per ounce to London prices, the sharpest discount since gold in China last traded below the international benchmark in January 2012.
Last April's crash in the gold price saw Shanghai premiums to $100 per ounce.
"A decrease in China's physical demand for gold," says HSBC, "even if only a temporary one, could undermine rallies."
The world's largest gold consumer in 2013, China has doubled its annual GDP to $8.2 trillion since 2009, notes Newedge brokerage strategist Robbert van Batenburg.
That growth came "in part by heavy leveraging...The shadow banking system alone has grown from $3trn in 2010 to $8trn by the end of last year."
"Weaning China off [its] credit bubble is likely to be painful and may play out over the next several months," reckons Robbert van Batenburg, strategist at New York-based brokerage Newedge.
"If Chinese authorities lose control over this process, it may spark a flight into the safest assets, notably Treasuries and gold."
Shares in CITIC Bank, which earlier this week announced a "virtual credit card" venture with internet giants Tencent and Alibaba, were suspended in Hong Kong today after a 7% drop, apparently sparked by rumors of a clampdown by Beijing.
Also prompted by the Communist government, says Reuters, China's banks are slashing credit lines to major industries by up to 20% this year from 2013, Reuters reports from Shanghai, citing unnamed "sources with knowledge" of a cut to shipbuilders and a specific letter sent to steel mills.
The China Banking and Regulatory Commission has added debt financing and derivatives trading to those sectors for which bank lenders must submit audits – a "new development", according to one source, after last week's default on bond interest payments by PV solar-cell manufacturer Chaori Solar.
"The specific sectors to be audited are steel, cement, aluminium smelting, flat-glass and shipbuilding," says one source quoted by Reuters.
"Beijing has already given enough warning that they are cracking down," says another.
"Rising expectations that [People's Bank of China] could act this weekend," says a London bullion desk, "to ease the tensions over liquidity crunch spiral."

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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