Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold's Rally Fades But China Inflation Fears Means Stay Bullish

Commodities / Gold and Silver 2011 Jun 14, 2011 - 06:59 AM GMT

By: Ben_Traynor

Commodities

Best Financial Markets Analysis ArticleWHOLESALE PRICES for gold bullion eased back to $1516 per ounce Tuesday morning London time – nearly 4% off May's record high – after recovering half of Monday's 1.3% fall.

Spot silver prices also fell back after a rallying briefly, falling to $34.63 per ounce – a three-week low.


Commodity action was mixed while stock markets gained after data from China showed investment growth and rising inflation in the world's second largest economy.

"Sovereign debt issues, currency debasement, inflation and geopolitical risk are all reasons to remain bullish" for gold", leading bullion bank Scotia Mocatta writes in its latest Metal Matters report.

"I would say gold is still bullish," agrees one gold bullion dealer in Singapore.

US monetary policy and long-term Dollar weakness remain "the main factors", the dealer told Reuters, adding that demand for gold in China will be "pretty robust this year."

China's consumer price inflation hit 5.5% in May, its highest level in almost three years, figures published on Tuesday show. Food prices in China – the world's second-largest gold bullion market – were up by 11.7% year-on-year, compared to 11.2% in April.

The central bank, the People's Bank of China, responded Tuesday by raising large commercial banks' reserve requirement ratio – the minimum proportion of customer deposits that banks must hold rather than lend out – by half a percentage point to 21.5%, an all-time high.

"We expect the central bank to [also] raise interest rates next week," says Xianfang Ren, Beijing-based economist at IHS Global Insight.

China's rising inflation "presents a big challenge for policymakers" agrees Wei Yao, China Economist at Societe Generale.

"The data makes a strong enough case for the PBoC to hike interest rates within this month...a prudent central bank should not back down in such a situation."

Inflation is "above Beijing's comfort level" adds Brian Jackson, Hong Kong-based senior strategist at Royal Bank of Canada, who reckons "more rate hikes are likely over the next few months."

The PBoC has raised its deposit rate four times since last October, from 2.25% to 3.25%.

Analysis by BullionVault suggests that in recent years PBoC interest rate changes have not tended to have a lasting impact on Chinese gold bullion demand, with economic growth and inflation playing a greater role.

Rising prices have prompted a "renewed fear that inflation could erode the value of investments, pushing investors into precious metals as a more reliable store of value," says Marc Ground, commodities strategist at Standard Bank.

"Gold is the main beneficiary of rising inflation," agrees Park Jong Beom, senior trader at Tongyang Futures in Seoul. 

Chinese industrial output, meantime, was up 13.3% in May compared to a year earlier, while investment in fixed assets – such as factories – rose 16.9%.

"[There is] little to suggest that Beijing needs to worry about a hard landing in coming months," reckons Royal Bank of Canada's Jackson.

Over in the United States, the Federal Reserve should not continue "monetizing the debt", Federal Reserve Bank of Dallas president Richard Fisher said Tuesday. 

"We've done enough...I will not support doing more."

Fisher warned in July last year that a second round of quantitative easing (QE2) would undermine the Fed's credibility, revealing it to be the "handmaiden" of expansionary fiscal policy.

In November, however, Fed chairman Ben Bernanke launched QE2, a $600 billion asset purchase program due to end this month.

"Accommodative monetary policies are still needed," Bernanke said in a speech last week.

Back here in Europe, meantime, the yield on Greek 10-Year government bonds jumped to 17.14% Tuesday morning – its highest level since the launch of the Euro in 1999 – a day after ratings agency Standard & Poor's downgraded Greek debt from B to CCC, the lowest debt rating of any country in the world.

"Problems in Europe are so severe that we're going to wake up one day and find that the Euro is no longer traded," says Dennis Gartman, publisher of the famous Gartman Letter, in an interview this week, in which he argues gold bullion is a better reserve currency than the "topped out" Euro.

By Ben Traynor
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in