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Dollar Drop Sees Gold Price at 3-Week High, Silver Holds $2 Leap as Weak China Data Challenges Zero Covid Policy

GOLD PRICES firmed near 3-week highs Monday against a plunging US Dollar as global stock markets rose amid fresh speculation that China – now seeing the weakest import/export growth since spring 2020 – will revise its 'zero Covid' lockdowns policy, writes Atsuko Whitehouse at BullionVault.
Western bond markets also paused their 2022 drop as campaigning in the US mid-term elections came to a head for tomorrow's vote, holding 10-year Treasury yields 15 basis points below last month's 15-year high of 4.30% per annum after the US Fed hiked its overnight rate to 4.0% last Wednesday.
Having leapt late Friday on what may have been short-covering by bearish Comex traders, spot gold prices dipped and then rose back to $1678 per ounce, retaining last week's 2.2% gain.
The price of silver, now finding nearly 60% of its annual demand from industrial uses, also recovered an early dip to regain the $20.80 level after surging 8.3% last week to the highest since early October, with the gray metal adding $2 per ounce on Thursday and Friday alone.
The strength of silver pushed the Gold/Silver Ratio – a measure of the two formerly monetary metals' relative prices – down further to 80, the lowest value for gold versus silver in over 6 months.
Friday's late jump in gold prices today saw the premium paid in Shanghai for bullion landed in China – the precious metal's No.1 consumer country – halve to $15 per ounce, still well above the typical incentive for new imports but sharply down from the near-decade highs of recent weeks.
Based in US Dollars, China's total exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020 marked the depths of the country's first-wave Covid crisis.
Chart of China's 12-month import/export growth. Source: Reuters
With anger growing at Beijing's continued zero Covid policy, lockdowns and forced isolation remain "completely correct, as well as the most economical and effective measures" said Hu Xiang from the National Health Commission's disease prevention and control bureau at the weekend.
However, local authorities need to balance epidemic prevention with economic development said Tuo Jia, a National Health Commission official, acknowledging complaints in some cities about over- zealous enforcement.
"The China reopening story gained its own momentum last week and while the official line has not changed, the tone has softened," says derivatives platform Saxo Bank's commodity strategy team.
"Strong export growth has been the single-largest [gross domestic product] growth driver in China since spring 2020, the contraction of exports will inevitably weigh on growth, employment and investment, while it may also prompt Beijing to reconsider its zero-Covid strategy and property curbs," says Japanese investment bank Nomura's China economists, led by Lu Ting.
Hitting 3-week highs this morning, meantime, gold priced in Euros today edged lower by 0.5% at €1680, while the UK gold price in Pounds per ounce fell 0.9% to £1460, as both currencies reduced their recent losses against the Dollar.
The Dollar index – a measure of the US currency's value versus its major peers – extended Friday's near-2% plunge, the biggest 1-day fall since March 2020, following mixed US jobs data for October
Back in China, officials said the country identified 3,500 new cases of Covid-19 on Friday, including about 3,000 who tested positive despite not having any symptoms.
Global consumer-tech brand Apple (Nasdaq: AAPL) expects to produce 3 million fewer iPhone 14 handsets this year than originally forecast thanks to the Coronavirus lockdown at the giant Foxconn plant in Zhengzhou province.
But with analysts debating the chance of easier rules, Chinese stocks listed in Hong Kong led gains in the Asia-Pacific on Monday, adding 2.5%, while Shanghai-listed shares rose 0.2% following their highest weekly gain since July 2020.
China's total exports shrank 0.3% per year in October having shown 5.7% growth in September, data showed Monday. 
Oil prices meantime stabilised Monday lunchtime in London, hovering close to $100 a barrel, after paring losses in early European trading. Brent and West Texas Intermediate (WTI) rose 2.9% and 5.4% respectively last week.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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