Gold News

Spot Gold "Fails to Spark" China Buying, "Needs to Extend" $100 Drop from 6-Month High as Shanghai Discount Widens

SPOT GOLD fell 1% at the start of London trade Thursday morning, extending its drop from last week's 6-month high to $100 per ounce.
 
Rallying from $1292 but failing to reach $1300 – a level first seen on the way up in September 2010 – spot gold then eased back again as New York opened.
 
Overnight, spot gold prices in China – the world's heaviest end-user market – had earlier lost 1.1% in Yuan terms.
 
But with the Yuan currency falling back towards last week's 12-month lows, Shanghai gold blew out to a $6.80 discount beneath London prices per ounce – the widest gap since last week's multi-year records.
 
Most typically, prices on the Shanghai Gold Exchange have traded at a premium to London settlement, peaking $50 above during the global price crash of April-June 2013.
 
Mainland China's gold demand leapt on last year's price drop, growing 13% by value to equal $49 billion, according to data from market-development organization the World Gold Council.
 
"Gold's $90 descent in March has not unearthed a rush of buying from opportune players," says Swiss investment and bullion bank UBS.
 
"This suggests that gold needs to descend further before it finds its price floor."
 
"Demand from Asia remains lacklustre," agrees Standard Bank analyst Walter de Wet in London, "despite the sharp drop in price over the past two weeks."
 
Noting the sharply negative SGE premium, "The next major support level for [spot gold] is $1272," de Wet says.
 
"Fundamentally, rallies are likely to fade."
 
The Shanghai discount, says refining and finance group MKS's Asian note, "combined with the volatility seen in USDCNY, has kept Chinese physical buying sidelined for most of the dip over the last 2 weeks."
 
Citing conversations with clients and other dealers, "We would need prices somewhere in the $1225-1250 region before any meaningful activity will be seen" from buyers in China, MKS concludes.
 
Meantime in the stock market, Chinese equities fell for the second-day running, but held above last week's 2-month low.
 
US stock markets edged higher, but European equities held flat overall after new data showed private lending across the 18-nation currency zone shrinking for the 20th month running in February.
 
Eurozone government bond prices rose, pushing 10-year German Bund yields down to 1.54%, while Italian and Spanish yields fell to 2005 levels at 3.30% and 3.54% respectively.
 
The Euro dropped to 3-week lows on what Commerzbank calls "speculation" of monetary easing by the European Central Bank.
 
That curbed the drop in spot gold for Euro investors at €940 per ounce.
 
However, Sterling investors wanting gold bullion saw prices drop as low as £777 per ounce, as the Pound jumped after new data showed UK retail sales continuing to surge in February.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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