Gold News

Gold Trading Tight Around $1300 After China Extends "Surprising" Stop-Loss Drop, London Borrowing Costs Reach 8-Month High

GOLD TRADING in London's wholesale market was muted on Wednesday morning, failing to break more than 0.5% either side of $1300 per ounce while equities rose worldwide despite fresh military confrontations in eastern Ukraine.
 
Silver prices spiked to $19.80 per ounce but held nearly 2% down for the week so far, doubling the drop in gold.
 
Gold trading "had a very ugly day Tuesday," says a technical note from Canadian ScotiaBank's bullion division Scotia Mocatta. 
 
"We have been stopped out of our bullish view, and have shifted to neutral."
 
"Surprising as it was," says US brokerage INTL FCStone of Tuesday's near-$40 plunge, "the sell-off in gold was likely attributable to heavy stop-loss liquidation," with "hectic" gold trading as the price fell through its 200-day moving average at $1300.
 
Falling some $15 per ounce "just in the span of a minute," says the note, gold's trading action was "indicative of stops being set off."
 
Playing catch-up with Tuesday's drop in New York futures, Shanghai prices today extended that fall to end the day equal to $1299 per ounce – a discount of $3.50 to London quotes this morning.
 
Gold trading was brisk however, with the Shanghai Gold Exchange seeing the strongest volume in its most active "spot" contract for almost 3 weeks.
 
Although China's retail sales grew sharply overall in March, rising 12.2% by value from the same month last year, sales of gold, silver and jewelry fell 6.1% new data showed today.
 
Forecasting a "year of consolidation" for China's gold demand in 2014 after the huge consumer response to 2013's gold price crash, a new report from market-development organization the World Gold Council said Tuesday that "Physical gold demand is likely to further growth over the medium term" as China's middle class swells from 300 to 500 million people by 2020.
 
Over-stocking by Chinese wholesalers is capping new demand, reckons Societe Generale analyst Robin Bhar, who tells Kitco News that "There is less metal being drawn out of US Comex warehouses and being exported to Asia, which had been particularly strong in 2013."
 
But with gold stockpiles in US Comex warehouses growing to new 10-month highs however, the cost of short-term gold loans in London rose Wednesday to new 8-month highs, suggesting tighter supply in the world's main wholesale market.
 
One-month GOFO rates – an incentive offered to would-be gold borrowers, who must pay storage and lose cash interest during the term of a loan – today went to minus 0.11% annualized.
 
That means London bullion lenders are asking the highest payment since mid-August, as the surge in 2013 Asian demand pulled gold out of UK storage.

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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