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LAWRIE WILLIAMS: Gold doing OK during China holiday

Some commentators on gold had forecast dire things for the gold price during China’s Golden Week holiday (this week) when Chinese gold markets are closed.  In the event – so far – the gold price has held up well at its recent lower levels despite misleading headlines like this one from Reuters: “China's August net gold imports plunge 55 percent”.

Why do we consider this misleading?  It describes Hong Kong’s gold exports to mainland China, which admittedly dipped sharply in August (32.57 tonnes) to their lowest level since January as higher domestic prices are said to have dented demand, as a proxy for total Chinese gold imports.  But, Hong Kong’s gold exports to the mainland are no longer a proxy for Chinese total imports as any examination of Switzerland’s gold exports to the region will show – see the latest Swiss import statistics for August which showed over 70% of Swiss gold exports in  the same month to mainland China and Hong Kong going to the former.  Hong Kong is increasingly being bypassed as a conduit for mainland China’s gold imports! Hong Kong figures are relevant, but no longer a proxy for the total.  Switzerland is a key source of gold imports for the Far East.

However it should also be said that overall Chinese gold imports do indeed seem to be slipping – but perhaps by not nearly as much as the Reuters headline – or article – might suggest.  But the gold price had also been slipping, almost certainly in part because of a perceived slowdown in Asian demand – notably in India and in China, the world’s two largest gold markets.  US dollar weakness had also been an important contributing factor to gold's earler rise (in US Dollar terms) here with the dollar index having fallen from around 103 early in the year to around 91.3 immediately after the U.S. Labor Day holiday at the beginning of September – a fall of over 11%. 

Major U.S. holidays often seem to provide a turning point in market sentiment as we have pointed out here before and Labor Day this year has been a case in point with the dollar index rising again from its 91.3 low point to around 93.6 as I write – a 2.5% increase – and gold has seen a sharp price turnaround accordingly.  It has been making a slight recovery today in European trading, but it remains to be seen what will happen when American markets open – it could well be knocked back down again – we shall have to wait and see.  However the fears of some commentators that we could see a big knockdown in the gold price while Chinese markets remain closed has not occurred – yet!

The big GLD gold ETF, which we consider a good guide to gold investment sentiment, has bled just over 10 tonnes since the end of September – up until then it had seen some strong increases through the latter half of August and during September.  However a lower gold price eventually took its toll on institutional gold investment, although there was no movement in the GLD holding yesterday which may just be a brief hiatus.  We need to watch the dollar index (still down around 9% year to date) and gold movements in and out of GLD to see where gold is likely to go to yet, but the likelihood of the price reaching $1,400 this year, as some of the more optimistic gold analysts had been suggesting, now looks like a pipe dream barring a return to a sharply weakening dollar.

05 Oct 2017 | Categories: Gold, China, Dollar

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