Gold, silver, pgms crash on overnight Shanghai trades

While Chinese volumes may have been seen as lending support to gold and other precious metals prices through continuing high gold withdrawals on the Shanghai Gold Exchange and strong import levels, today the reverse has been true.  A reported sale of 5 tonnes of gold into the SGE has really rocked the markets, at one time driving the spot gold price down below the $1100 level, although European trading brought it back up again – but still well down on the previous day’s levels.  Julian Phillips writing here suggests that the bear raid commenced in New York, while John Meyer at London broker/banker S.P. Angel noted the Chinese element was thought to have been made into China’s smaller gold market half an hour after the market opened to take advantage of the lower liquidity and fragile market environment.

Overall, uncertainty about what prompted this big gold sale is rife.  Could it be for a liquidity necessity following the big recent Chinese stock market crash, or could it be the Chinese falling out of love with gold?  Or could it be a big gold dump on the SGE international section, tied in with a big sale out of the gold ETFs on Friday?  The evidence suggests it may well be the latter. One supposes time will tell.

Germany’s Commerzbank in its daily commentary reported it thus: “Crash on the gold market – as the new week gets underway, the price of one troy ounce plunged for a time by up to 5% or around $50 to just over $1,080 during the course of early trading, thus hitting its lowest level since February 2010. It has meanwhile recouped over half of these losses again. In euro terms, gold dipped temporarily to a 6½-month low of a good €1,000 per troy ounce.

“The price slide was triggered by high selling volumes on the gold exchange in Shanghai. According to figures from Reuters, over a million lots were traded there in one key contract. Apparently, the average figure so far in July had been below 30,000 lots….

“All other precious metals are also under pressure in gold’s slipstream: silver has been trading for a time at a 7½-month low of $14.5 per troy ounce, while platinum dropped for a while to a 6½-year low of less than $950 per troy ounce and palladium hit its lowest level since October 2012 (a good $600 per troy ounce).”

Commerzbank also noted increased pessimism on precious metals on COMEX, a further retreat by gold ETF investors who, according to Bloomberg, sold out of 15.7 tonnes on Friday – the biggest daily decline in 2 years, while it sees the Greek situation and China’s lower than expected new gold as being of relatively little significance.

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