Chinese demand propping up soft gold prices
Tokyo-Japan (Oct 30) As speculation of an American interest rate hike puts downward pressure on the gold futures market, spot prices for the metal are getting a lift from active buying of bullion in China, resulting in a tug of war.
The U.S. Federal Open Market Committee hinted at the possibility of a December rate hike in a statement after its meeting Wednesday. This sent gold futures down from around $1,175 per troy ounce to about $1,150 in off-hours trading Friday in New York. Still, the market was firmer than expected, said Koichiro Kamei, a financial and precious-metals analyst.
Gold does not earn interest, making rate hikes an incentive to sell it. Prices of the metal have fallen when there has been debate over whether the Federal Reserve would raise rates. But gold has apparently held its ground this time compared to the drop in July, when Fed Chair Janet Yellen indicated to Congress that a rate hike by year-end would be appropriate.
"A rate hike has already been factored in to a significant extent," said Hiroyuki Kikukawa, chief analyst at Nihon Unicom.
Following the FOMC statement, a Thomson Reuters GFMS report predicted that devaluation of the yuan would strengthen gold demand in China. A weakening yuan means that gold prices based on the currency will likely go up. Chinese investors are snapping up gold, partly out of disappointment over the falling stock market.
The week after the yuan's effective devaluation was announced in mid-August, some 70 tons of gold left the vaults of the Shanghai Gold Exchange. Financial institutions and precious-metals stores apparently made withdrawals so that they would have enough gold to sell to investors coming to buy. The SGE's weekly reports show this movement of gold bullion to have picked up since Shanghai stocks plunged in mid-June.
A total of 900 tons of gold, worth about $33 billion, has been transferred from July to mid-October. More than 2,000 tons of the metal has moved since the year began, already reaching the level for all of last year.
The People's Bank of China announced an additional interest rate cut Oct. 23. While data since then is not available, gold withdrawals may have accelerated.
China is ramping up gold imports, with 97 tons moved from Hong Kong to the mainland in September -- the most in 10 months. And 22 tons was shipped by air from Switzerland. Large volumes of gold have also been transported from domestic mines to the exchange.
Precious-metals players see gold at $1,160 next year, around the current level, according to the average forecast of officials from financial institutions, funds, mining companies and other entities from 40 countries who gathered for an Oct. 18-20 forum in Vienna. This appears to reflect market unease about U.S. rate hike despite a recovery in Chinese demand. Many investment professionals are undecided on whether to buy or sell gold.
Source: Nikkei.com
