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Gold and Silver Rally from China's Covid-Lockdown Crash as PBOC Tries to Boost the Yuan

GOLD, SILVER and the other precious metals rallied Tuesday from yesterday's steep price falls, rebounding with Western stock markets as longer-term interest rates fell yet again in the face of China's fast-spreading Covid lockdowns denting world trade and industrial output.
 
The MSCI World Index fell 2.6% on Monday, nearly matching the global stock market's worst 1-day drop of 2022 to date.
 
China's CSI 300 stock index then lost another 0.8% on Tuesday, hitting a 2-year low with its 44th drop out of 74 trading days so far this year and down by 36.2% from February 2021's return to the record peak of late-2007.
 
With 10-year US Treasury yields retreating further from last week's 2018 highs, gold prices meantime rallied 0.9% from Monday's $40 drop to 4-week lows at $1892 per ounce, before slipping back $3 to $1906.
 
The price of palladium – primarily used in autocats to cut harmful emissions from gasoline-engine vehicles – regained only 1/3rd of yesterday's 13.0% plunge versus the Dollar, briefly rising back above $2200 per ounce.
 
Silver rallied 2.3% from yesterday's new 9-week low before easing back 30 cents to $23.65 per ounce.
 
Silver's price plunge saw the Gold/Silver Ratio of the 2 formerly monetary metals rise to a 19-month high on Monday, valuing 1 ounce of 'safe haven' gold at nearly 81.6 ounces of more industrially-useful silver.
 
Chart of daily Gold/Silver Ratio, London benchmarks. Source: BullionVault
 
While China's lockdown of Shanghai and much of Beijing "could see base metal prices further retreating" says commodities analysis from French investment and bullion bank Natixis, commenting on the plunge in copper, nickel and aluminum, "the drop in prices will be less severe thanks to the Russia-Ukraine war.
 
"Amongst the lessons that we can take from the previous major [Covid] lockdowns is that once they are lifted and consumer confidence rises again, bumper demand is likely to lead to a rapid rebound in prices."
 
Monday's steep fall in gold and notably silver prices saw bullion-backed ETF trust funds shrink a little while trading volumes in Comex derivatives contracts leapt to the heaviest since prices spiked towards record and 9-month highs respectively in early March.
 
The giant SPDR Gold Trust (NYSEArca: GLD) saw shareholders liquidate 0.3% of the fund, shrinking the world's largest gold ETF to its smallest in 5 sessions, but the iShares' product (NYSEArca: IAU) was unchanged in size.
 
iShares' Silver Trust (NYSEArca: SLV) meantime shrank by nearly 0.4% after reaching its largest size in 13 months at the end of last week, needing 18,022 tonnes of silver bullion to back its shares in issue.
 
That equates to 70% of last year's total global silver mining output according to the new World Silver Survey 2022 from specialist analysts Metals Focus, published by the Washington-based Silver Institute.
 
After China's central-bank chief Yi Gang on Friday called China's monetary policy "certainly accommodative [and] supporting our real economy", the People's Bank on Monday cut foreign-exchange reserve requirements for domestic banks in a bid to support the Yuan and today promised new support to smaller businesses hit by the Covid lockdowns, plus loans worth $15 billion to coal mining and storage. 
 
Gold priced in Yuan today slipped to a 4-session low on the Shanghai Gold Exchange as the Chinese currency rallied from a new 12-month bottom versus the US Dollar on the FX market.
 
That still saw domestic gold prices in the metal's No.1 consumer country show a small premium to London quotes, offering an incentive of $1.15 per ounce to new imports – half of Monday's level and barely 1/8th the historic average.
 
"Palladium is hyper-sensitive to China lockdowns," Kitco quotes derivatives brokers RJO Futures, "due to the fact that they carry over to manufacturing data."
 
Platinum prices today steadied above $920 per ounce after slipping $15 on Monday to new 2022 lows for the diesel-engine and fuel-cell catalyst precious metal.
 

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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