Eyeing the Rapid Development in the Chinese Gold Market
After jumping 3.32 percent last week, the U.S. Comex gold futures traded
between $1,717.60 and $1,738 and ended at $1,724.80 on Tuesday, down
0.35 percent from Friday. The S&P 500 index fell a further 0.39
percent this week after dropping 2.43 percent last week while the Euro
Stoxx 50 index recovered 0.54 percent this week after falling 2.64
percent last week. The Dollar Index has been hovering around 81 in the
past four days. The VIX index fell from 18.61 last Friday to 16.65 on
Tuesday.
Last week, China reported better-than-expected exports growth,
industrial production data and fixed asset investment growth while the
reported inflation data was lower than expected, fuelling hopes of
recovery without higher inflation. As the new Chinese leaders will be
confirmed on 14 November, the market will focus on how well the new
administration can carry out the structural reforms to rebalance and
further liberalize the economy.
In Hong Kong where the annual London Bullion Market Association (LBMA)
conference took place on 12 to 13 November, many eyes were on Chinese
gold demand and trading. According to the World Gold Council, China’s
gold demand has risen 27 percent per year since 2007 and China’s world
share has doubled from 10 percent to 21 percent from 2007 to 2011.
Nevertheless, its gold reserves as a percentage of total reserves were
only 2 percent as of 2009 compared to over 70 percent in the developed
countries. To further enhance trading, the Shanghai and Shenzhen Stock
Exchanges will soon launch gold ETFs while the Shanghai Gold Exchange
will have an interbank market in early December which will also be open
to foreign banks.
According to the LBMA survey, gold price will rise to $1,849 by next
September. Market participants generally expect gold to trade within a
range of $1,800 to $2,000 in 2013. The rise in gold price is supported
by harder and harder gold discoveries according to Barrick Gold’s CEO.
Barclays predicts gold production to rise by less than 1 percent in
2013.
In Europe, the Finance Ministers have agreed to postpone by two years to
2022 for Greece to reach its target debt to GDP ratio of 120 percent
although the IMF disagreed with the delay. Greece needs to borrow an
extra 32.6 billion Euros which will further threaten its debt
sustainability.
The uncertainty towards Greece, the U.S. fiscal cliff and Wednesday’s
FOMC minutes release would certainly be catalysts for gold prices.
Austin Kiddle
Sharps Pixley, London
www.SharpsPixley.com
14 Nov 2012 | Categories: Gold
