Gold News

Gold Jumps 2.0% on China Rumors, Sinking Dollar, ETF Growth

The Gold Price rose 2.0% for US-Dollar investors overnight in Asia and London on Tuesday, recording an AM Gold Fix of $1015.75 an ounce as world stock markets also rebounded.

The European single currency jumped to new 2009 highs above $1.4800, while soft commodities rose and US crude oil futures moved back above $70 per barrel.

Government bond prices ticked lower.

"It's very possible that China buys Gold from the IMF and it's also possible the country buys all of it given its vast forex reserves and relatively low gold holdings," said Qu Mingyi, a gold dealer at Bank of China, in a story published overnight by Market News International.

The Australian newspaper meantime cited a Reuters news story – not currently posted online – quoting a China central bank official as saying the country had "only" 1,054 tonnes of gold in its official reserves.

The People's Bank of China apparently declined to comment. The International Monetary Fund confirmed on Friday that it will sell 403 tonnes from its hoard to finance development projects in poorer countries, offering gold to central banks before considering steady, pre-announced open-market sales.

"China has no need at all to Buy Gold from the international markets," counters Lila Lu, chief precious metals trader at Minsheng Bank Corp. in Beijing, speaking to Reuters.

"Because China is a large gold producer, it can source gold directly from its domestic makers, most of which are state-run enterprises."

Off-market purchases direct from domestic Gold Mining firms enabled South Africa – then the world's No.1 producer – to double its gold reserves during the late 1960s.

"Why should we use US Dollars to Buy Gold?" Lu added today. "We can use Yuan instead to purchase gold from domestic producers."

Early Tuesday the state-owned China Investment Corp. announced taking a 15% stake in Singapore-listed commodities trading house Noble Group at a cost of $850 million.

Physical gold demand from private Chinese households rose 9% in the first half of this year, trade marketing-group the World Gold Council said today, announcing an "unprecedented" sales push across rural China.

"Gold demand [between Jan. and July] was flat in Beijing, Shanghai and other first-tier cities, while consumption in rural areas showed surprisingly strong growth," according to Gerry Chen, the WGC's local business development manager.

"The second half will maintain momentum," he tells the Shanghai Daily. "It was hustle-bustle at the Shenzhen International Jewelry Fair last week. Retailers stood in long lines to do business."

Analysis from BullionVault shows that private households in China have nearly doubled their spending on gold as a proportion of savings over the last decade.

A new survey from MasterCard says some 59% of rural households plan to increase their discretionary spending in the next 12 months, compared with 41% in the biggest cities.

"Even at $1,000 [wholesale] customers are still filling up their stocks right now," reported Dick Poon at the Heraeus refining and trading group in Hong Kong today.

"We are still bullish for gold. At the end of this year, we'll see another record high."

"ETF investors clearly still believe in this market," says one London dealer, noting Monday's 15-tonne increase in bullion holdings at the SPDR Gold Trust, the world's largest exchange-traded gold fund.

But "I find it difficult in the near term for gold to do anything independent from the dollar," says Ole Hansen at Saxo Bank, also speaking to Reuters.

"Gold will probably rally to a new record if we see a sudden burst of activity on the Dollar."

Although the Euro price of gold has held in a tighter range than the Dollar-price so far this month, both have risen over 11% from their mid-July lows.

At Tuesday's AM London Gold Fix, daily volatility in gold remained half-as-strong again for US-Dollar traders as for Euro buyers.

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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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