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LAWRIE WILLIAMS: SGE leading gold price recovery as positive indicators pick up

It has been noticeable over the past few days that the relatively new Shanghai Gold Exchange (SGE) gold price benchmark has been leading the way in terms of setting the direction of the global gold price level.  Since the COMEX opportunists took advantage of the week-long Chinese Golden Week holiday, when the SGE was closed, to bring the gold price down by around $60 over that week (See: Gold price plunges in China’s market absence) the price has at least stabilised and in general has moved upwards a little, although London and New York trading has tended to mitigate this.

My colleague, Julian Phillips, writing on and elsewhere, has been pointing out the trend for the SGE to be leading the way on gold pricing virtually ever since the SGE re-opened after the holiday just over a week ago.  This has seen the gold price decline halted and trending slowly upwards since.  This morning, for example, China set the price in  the low $1270s.  London appears to be bringing it down a little, but this has been the general pattern of late with the higher SGE benchmark setting the overall trend for the day.

Phillips goes further pointing to the logic that it indeed makes sense for Shanghai to be the pre-eminent benchmark gold price setter.  He notes that the Dubai gold exchange has signed a contract to use the Shanghai Fixings in place of the London Fixings. Clearly, the Shanghai physical gold market [the biggest physical market in the world] is thought to better represent physical gold prices than COMEX paper market prices. Shanghai is also negotiating with other exchanges to use Shanghai Fixings in their markets.  (see: China leading gold prices higher)

There are also some other currently positive signs for precious price direction.  Demand in China and India, the world’s two biggest gold markets, appears to be picking up at last with price premiums re-appearing, while the big gold ETFs continued to see inflows even through the early October price decline.  Silver ETFs also seem to be seeing some decently positive activity.

Indian demand has been particularly disappointing so far this year, although official import figures will probably be understating the true position due to anecdotally reported high levels of smuggled gold to avoid high import duties.  But the Indian ‘gold season’ is now coming to its peak with the hugely important Diwali Festival coming in at the end of the month, following on from what may have been the best monsoon rains for some years which will have substantially boosted the country’s rural economy, and strong agricultural earnings have historic ally led to high gold jewellery sales and this seems to be being reflected in the return to gold price premiums.

20 Oct 2016 | Categories: Gold

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