Indian gold demand coming back on line as Chinese SGE gold ‘fix’ imminent

Gold TodayGold closed in New York at $1,256.10 down from $1,257.40 on Tuesday. On Wednesday morning in Asia, it fell back and continued to fall in London as the dollar strengthened. London saw the LBMA price setting at $1,245.75 down from $1,259.20 on Tuesday.

The dollar index is higher at 94.60 up from 93.84 on Tuesday. The dollar is stronger against the euro at $1.1309 up from $1.1419 yesterday.

The gold price in the euro was set at €1,101.56 down from €1,102.72 Tuesday.

Ahead of New York’s opening, the gold price was trading at $1,246.75 and in the euro at €1,102.05.  

Silver Today –The silver price closed in New York at $16.21 up from $15.90 on Tuesday. Ahead of New York’s opening the silver price stood at $16.13.

Price Drivers

Today sees the euro weaken and the dollar index rise as you can see above. The market is being moved by exchange rate moves, as physical demand in the U.S. is negative and, on balance, ETF shareholders were sellers of small amounts yesterday.

Reports of the leading U.S. institutions turning bullish on gold continue across the board targeting as much as $1,500.  The prime driver they record is the Technical picture. We do not argue with that, but add that there are several other factors that will contribute to the rise in the price of gold. Renewed Indian demand and next week’s Yuan gold Fix will be among those adding to the bullish tone of the market.

India – After 43 days of strikes which have produced nothing but losses for the jewelers the strike is off. Now we will see ‘official’ imports begin to flow again, into the country. These ‘official’ supplies flow through London to India. They will affect the London and New York gold prices.

It is always difficult to state India’s imports with any accuracy because of smuggling. And by their very nature, tonnages smuggled into the country cannot be accurately measured. But behind closed doors jewelers have continued production.

We see the 1% duty imposition as a side issue. The main issue is that all jewelers must now report their activities to the bureaucrats of the government. Until now, their activities have gone unreported. But the Indian ‘cash culture’ will ensure that the figures reported may well not reflect the true picture.

China & the Fix – Taken in isolation next week’s start of the Yuan Fix in Shanghai may well not have an immediate impact on the global gold price. Time will be needed for the system to settle in. But taken with the other moves made by China to influence the global gold price and we may well be on the brink of a very different gold market from now on.

Gold ETFs – We saw sales of 2.675 tonnes of gold from the SPDR gold ETF but a purchase of 0.48 of a tonne into the Gold Trust on Tuesday. This leaves their holdings at 815.138 and 188.04 tonnes in the SPDR & Gold Trust respectively.  This did not affect the gold price, which is reacting to currency moves.

Silver – The silver price is running full pelt ahead of gold only to pause when gold slips then runs again when it begins to rise.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

 

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China may now be close to new gold benchmark pricing system

Lawrie Williams

Reports out of China suggest that the currently chairmanless Shanghai Gold Exchange (SGE) is on the verge of announcing a new chief executive in Jiao Jinpu, a senior official from the Chinese Central Bank – the Peoples Bank of China.  (The SGE is an arm of the PBoC).  The likely appointment of Jiao is seen as the definitive indicator that the SGE is now very close to setting up its much-heralded Yuan gold price benchmarking system to rival that in London and give China more control over gold prices in the future.  Whether this will still happen this year, though, is rather less certain despite earlier suggestions that it would.  Jiao will have to work fast to achieve this, but undoubtedly the groundwork is already well under way.

But the Chinese have also shown that they don’t hang around in implementing key new economically-oriented entities once the go-ahead decision has been taken and, according to a Reuters report Jiao is seen as a mover and shaker who should be able to move things forward rapidly assuming that the benchmark system process would be high on the agenda.

The SGE has been without a Chairman since the previous incumbent, Xu Luode, was promoted to Executive Vice President of the PBoC – which itself is an indicator of the importance of gold in the central bank’s policies.  The Chinese view gold as a vital element in the global economic system and in its generally accepted push to position the Yuan as one of the world’s accepted reserve currencies, and while not necessarily to replace the US dollar as top dog yet it probably does have this longer term ambition and with far faster domestic growth still than is being seen in the Western economies. It would seem to be well on its way to achieving this.

But first it will need a ‘seat at the table’ and the initial goal will be to have the Yuan recognised as a constituent of the US-dominated IMF’s Special Drawing Right ‘currency’ – the revised new make-up of which has now been deferred into the second half of next year.  In theory this delay has been seen as creating time to give China’s currency a little more time to meet the necessary criteria to be part of the SDR system, but in practice perhaps another delaying tactic by the US which recognises the potential threat to its global economic dominance.

China does see gold as providing a significant part of the global economic system and would thus like to have a much bigger influence in its pricing.  Chinese banks are beginning to be admitted into the new London benchmarking system introduced earlier this year, but probably at a slower rate than the Chinese would like.  Even with the Chinese bank participation it is suspicious of the London price setting mechanism as being potentially under the control of the Western bullion banks which it sees as working on behalf of their respective national central banks.  A Yuan gold ‘fix’ in Shanghai is reckoned to be a way of influencing the global gold price (probably equally geared towards the interests of the PBoC, although this will be denied.)  There are no level playing fields in global economics, and gold is almost certainly no exception in this.

In its article Reuters quoted a reliable Chinese source as commenting: “The exchange [SGE]will continue with the internationalisation of the Chinese gold market. That should not change because it is not just the ex-chairman’s policy but also state policy”.  The last sentence perhaps says it all!