Gold Slips as Beijing Denies Hoarding, Notes Huge Private Chinese Demand
Commodities / Gold and Silver 2010 Mar 09, 2010 - 07:59 AM GMTBy: Adrian_Ash
THE PRICE of wholesale gold bullion slipped to a one-week low early in London trading on Tuesday, falling to $1116 an ounce as the US Dollar rose on the currency market.
Asian stocks closed the day flat overall. European bourses lost 0.5%.
Crude oil dropped almost $1.50, slipping towards $80 per barrel, while government bonds rose, pushing yields down to a near 4-week low.
"Gold's still trading above the 50-and 100-day moving average," said senior ANZ analyst Mark Pervan in Melbourne to Reuters earlier, "which is encouraging."
"[Monday's] close below $1131 takes some of the life out of our bull run," says the latest technical analysis from Scotia Mocatta, but the bullion bank remains "bullish" with prices $1110 an ounce – "the rising trend line off gold's previous lows of 1045 and 1088."
Over in the Physical Gold market, "News is mixed" reports Wolfgang Wrzesniok-Rossbach at German refining group Heraeus, noting an increase in scrap gold supplied through Hong Kong as well as lackluster demand from the jewelry industry since mid-Feb.'s Chinese New Year.
Responding to New York University economist Nouriel Roubini – who forecast last weekend that a "super cautious...token" rise of 4% will be allowed in the Chinese Yuan's US-Dollar exchange during 2010 – Heraeus' head of sales adds that "Increasing discussion of revaluation [has] played a subordinated role in this context so far."
But "Should it come to such an appreciation of the Yuan, gold would initially become cheaper locally [in China, and thus] drive up demand again."
Private Chinese households hold "much more than 3,000 tonnes of gold," guessed Yi Gang, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange (SAFE), at a press conference today.
Telling reporters at the People's National Congress that China's $2.4 trillion in state-held foreign currency reserves are "appropriately diversified" – and vowing to keep the Yuan's exchange rate "basically stable" – Yi said that "The size of the gold market is limited. So China's [official] purchases of gold in the global market would push up global prices.
"China's domestic gold prices are related to global prices, so Chinese consumers will face higher prices and they won't like it."
Widely thought to prefer buying gold direct from domestic mine output – the largest in the world last year, overtaking the US, South Africa and Australia – the People's Bank reported an additional 400 tonnes in its gold reserves for 2003-2009.
Private Chinese households bought more than four times as much gold over that period, as BullionVault analysis shows.
"The long-term return on gold investment is not good," Yi went on at Tuesday's press conference. "It is increasingly volatile...and we will be very cautious in considering suggestions that we increase our gold reserves."
More than doubling in the four years to Dec. 2009, the gold price in Chinese Yuan has so far this week slipped in lock-step with the 1.7% drop in Dollar prices.
The Yuan has been pegged at a fixed exchange rate of CNY6.82 per Dollar for the last 20 months.
"With the retirement of Fed vice-chairman Donald Kohn," notes Martin Hutchinson at Prudent Bear, "President Obama now has the right to appoint three Fed governors," giving "soft-money advocates" the lion's share of Fed policy votes.
"The throttle will have been jammed open until at least January 2013 [...and] the current commodities bubble will have full rein for another three years," says Hutchinson.
"If no crash occurs, we will have gold at $5000, oil at $200 and other commodities at correspondingly nose-bleed prices."
Noting that the "transmission mechanism" of the Bank of England's quantitative easing program has been to push £200 billion of newly created money into "riskier" assets, "As yet, I don't consider the evidence suggests that this [current] rise in asset prices has gone too far," said career academic Kate Barker – shortly to stand down after 9 years voting on UK interest-rate policy – in a speech last night.
However, "I seriously underestimated the scale of the downside risks from a potential financial crisis" ahead of the 2007-2009 financial crisis, she added.
"With the benefit of hindsight...it is possible that it would have been preferable to have taken a more long-term view of the risks to inflation from economic instability."
The gold price in both Sterling and Euros today held 1% below yesterday's start by lunchtime in London, supported by a fresh drop in both currencies vs. the Dollar.
The UK's trade deficit leapt to a 16-month record in Jan., new data showed, despite the near-30% devaluation of Sterling since the global financial crisis picked up pace with the collapse of over-geared mortgage lender Northern Rock in Sept. 2007.
By Adrian Ash
BullionVault.com
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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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