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Chinese New Year No Guarantee For Galloping Gold Price

Chinese New Year No Guarantee For Galloping Gold Price

Jan 15 2014, 11:30am CST | by

What should gold investors expect from the Chinese New Year at the end of this month? First, expect lots of press coverage of housewives buying gold hand over fist to mark the start of the year of...

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27 weeks ago

Chinese New Year No Guarantee For Galloping Gold Price

Jan 15 2014, 11:30am CST | by

What should gold investors expect from the Chinese New Year at the end of this month?

First, expect lots of press coverage of housewives buying gold hand over fist to mark the start of the year of the horse.

Expect to learn that China is (drum-roll please) the world’s No.1 consumer, but not why (thank the 2013 collapse of Indian imports due to government rules). The lunar New Year marks an auspicious time to buy gold, you’ll be told. It also marks a retail frenzy, pictures from Shanghai and Shenzen shopping malls will show.

If all of this mattered, the move in world gold prices would come now, not at the end of January when the Lunar New Year begins. And right on cue, wholesale demand from stockists does indeed seem to be putting a firm bid for gold so far this year around $1250 per ounce. Premiums for gold delivered in China are also firm (albeit half the level of six months ago, when prices first reached current levels). So too is trading volume on the Shanghai Gold Exchange .

However large China’s end-consumer gold demand proves this New Year, the current action is hardly dramatic, because end-consumer physical demand doesn’t move gold prices. Not from people who buy gold because it is gold.

Whether the dreaded “bugs” collecting coins in the West, or Hindu families buying gifts and temple donations, the traditional gold buyers tend to want more when prices fall, and vice versa. The people whose money counts are instead those who buy gold because it isn’t anything else. Not stocks, not bonds. Something else.

These gold buyers (and sellers) bring truly fresh money to market, chasing prices higher (or lower) because of what’s happening to stuff which isn’t gold. Because gold itself, of course, doesn’t do anything. It doesn’t even rust. So the appeal for this far larger, lumpier flow of money starts with the world outside the gold market. Which gives these flows far greater impact than the consumer demand of gold’s consistent buyers.

Witness the loss of India, former world No.1, in mid-2013 for instance. Driven by religious, cultural and social forces running back to pre-Roman times , Indian households were on track for a record year as prices slumped last spring. Because prices were slumping.

India’s huge call on physical gold then got cut off from the world market after the government imposed strict anti-import rules, aimed at reducing India’s massive current account deficit . Yet with the world’s No.1 buyers’ locked out of the market, the back-half of 2013 then saw sideways price action overall. Gold ended December back where it was at the end of June, which was when India’s import restrictions (effectively a ban) really got started.

Now, just as the loss of India failed to pull prices lower (it was locked out of new imports ahead of and during Diwali, its own peak demand season in the autumn), so China’s New Year surge won’t reverse much of last year’s slump. Not yet. Money managers in the developed West continue to drive, moving prices by pouring in cash (or sucking it out) that would otherwise go into other, financial assets.

Remember, last year’s crash was all done by midsummer and 70% of the 550 tonnes of gold shed from the biggest ETF, the New York-listed SDPR Gold Trust (GLD), was gone by end-June. By then, speculators in US gold futures and options had slashed their net bullish position by four-fifths, cutting it to what proved the low for 2013, equal to barely 100 tonnes.

What might give China’s demand to buy gold a little more impact on prices? Analysts are split right now. Commerzbank calls the role played by China “make or break” for gold in 2014. Barclays notes that when Asia’s physical consumers are the market’s major focus, prices will be flat to falling.

But with Western money managers cutting their interest in gold to levels last seen at the bottom of the previous 20-year bear market, the sheer weight of China’s wealth might start to count. After all, per head of the population, the world’s second-largest economy creates GDP more than four times the size of India’s, the former gold No.1. Sure, it’s a fraction of US economic output per capita, a mere 11.8% in 2012. But that’s up from 8.0% three years before, and sharply higher from 3.2% a decade ago.

What’s more, China’s fast-growing middle-class is set to enjoy a new, broader range of financial services products to choose from. Late 2013′s third plenum of the current politburo made “market-based reform” a top priority .

Some gold analysts think wider financial choices mean Chinese investors and households will buy less gold. That’s only a guess (and substitution long forecast by analysts for India ‘s gold buyers failed to show up during the last decade). But more choice would most certainly mean fewer Chinese buyers accumulate gold for its own sake. Instead, they would now choose to buy, sell or ignore it because of what they expect will happen to other, financial asset classes. Which is the kind of gold investing, rather than consumer grazing, which actually impacts price.

Gold: Power and Allure, 4,500 Years of Gold Treasures from Across Britain

Source: Forbes Business

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat ...
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Update
9

7 weeks ago

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Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by robbe ...
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Update
8

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Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the ...
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Update
7

7 weeks ago

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Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri His ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Se ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Ba ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansar ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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