UPDATE; 25th August 13.30 GMT:
The People’s Bank of China cut its main interest rate by 0.25 percentage points to 4.6% after two days of stock market turmoil.
It is the fifth interest rate cut since November and will take effect on Wednesday.
The move has boosted European share prices further, with the FTSE 100 in London jumping 3.3% after the China move.
Blog Posting 10.30 a.m. 25th August 2014:
In a comment Pressure Mounts on China to Act Scott Minerd, Glocal CIO Guggenheum Partners writes:
“…the PBoC will soon be forced to reduce bank reserve requirements while allowing for a more rapid devaluation of the RMB. Time is not on the side of Chinese policymakers. Given the severity of the current domestic slowdown, pressure is mounting for more radical policy action.
“Expect to see further downward pressure on commodity prices, global equities, and U.S. Treasury yields. The first sign that we are approaching a bottom for all three will be when China caves and allows the RMB to adjust to a more appropriate level, which could mean another 25–30 percent decline in the value of the RMB against the U.S. dollar.
“Things will get worse before they get better, and investors around the world are demonstrating appropriate concern. Unfortunately, relief is nowhere in sight.”
Gold is likely to be back on the agenda of investors “demonstrating appropriate concern” over adverse developments and uncertainties.
For information on Goldwatcher Analysis and Events please e-mail
TWITTER : @JohnKatzGoldwatcher
The World Gouncil published the following schedule on Q2 2015 demand yesterday reflecting a 12% decline in total demand from the previous quarter with demand declines in every category.
||Q2’15 vs Q2’14
|Total bar and coin demand
|Physical Bar demand
|ETFs & similar products*
|Central bank & other inst.
|LBMA Gold price, US$/oz
Following this extremely negative news the FT reported this morning : “China released data on its gold holdings for the second time in a month on Friday, saying it had bought 19 tonnes of gold last month as prices traded at their lowest levels in five years. The People’s Bank of China said it increased gold holdings to 1,677 tonnes (53.93m fine troy ounces) at the end of July, an increase of 1 per cent.”
Goldwatcher analysis stresses the importance of central bank activity. Sustained interest by China is of special importance as she is on track to being the world’s largest economy by 2016 with the Remninbi expected to be included as a component of the IMF’s SDR basket within the next few months.
Chart illustrating Gold priced in offshore Remninbi Courtesy Ole Hansen Saxo Bank
“What a difference one announcement makes, especially when that announcement comes from China and it involves its currency which has been very steady for a long time against the dollar while many other currencies have weakened.”
Commodities recovered a bit on Monday only to be struck down in flames on Tuesday when the Peoples Bank of China announced its new fixing mechanism which essentially opens the door for a continued devaluation. The fact that the weakening of the currency has continued today has left the market with the unpleasant guessing game of how far they are prepared to let it go. Our FX Strategist John Hardy is looking at a potential 10% devaluation before the PBoC halts the slide.
Commodities most affected by China demand
Chart Courtesy Saxo Bank
The previous Goldwatcher posting illustrated emerging market currencies in freefall. 4.5% Remninbi adjustment in two days isn’t free fall Remninbi but loss is significant. Short covering rally is likely to support the gold price.
“I suspect the move will stop as quickly as it began at some unknowable point in the very near future (perhaps 6.80 area in USDCNY where the rate was fixed during the global financial crisis and representing approximately a 10% move?) and then the PBoC will try to make things as boring as possible.”
The following charts reflects major emerging market and other currencies in freefall against the dollar. By comparison the fall in the value of gold against the dollar has been minimal.
Chart : Bloomberg
The Russian Ruble
$ Gold Price January to July 15th
The Goldwatcher addresses current supply and demand for gold in Fact Based Analysis. For further informaion on Goldwatcher Fact Based Reports and Q&A sessions please contact:
Bloomberg on China gold holdings:
This CNBC article addresses the gold price plunge…
“Gold slid over 4 percent to as low as $1,086 an ounce in early trade on Monday, before paring back some losses over the course of the day. It was down 2.3 percent at $1,107 at around 12:00 SG/HK time…
“The disappointing performance of the yellow metal, which is down 6.4 percent on a year-to-date basis, has sent gold bulls into retreat.
“Technical analyst Daryl Guppy also warned of “bearish features” on the gold chart: “There is a higher probability of a future fall below $1,150 and a continuation of the downtrend towards historical support near $980.”
“Wherever you look, there really is no support for the precious metal,” said Howie Lee, investment analyst at Phillip Futures, who has been targeting gold to hit $1,100 since the start of the year.
“Developments in China, whether in terms of central bank buying or jewelry demand, are simply not sufficient to keep gold prices at high levels,”
PREVIOUS GOLDWATCHER ON CHINA DEMAND
“The gold price spiked to over $1900 between 2007 and 2011 when gold was being over hyped as a safe haven. In spite of the severe correction that followed the prophets of doom continue to hype gold relentlessly. Claims that China is on course to imposing a new gold standard to strengthen its credentials with the IMF is the latest absurd pitch.”
Readers of Goldwatcher Fact Based Analysis would not have been taken by surprise by the recent price plunge or previous price movements.
For details of Goldwatcher publications and Q&A sessions please email
Gold Price Weakness
Update 18th June 2015
Gold up 1.45% AT $1201
“Investors have cut total holdings in Exchange-Traded Products backed by physical gold to a new six-year low following five consecutive weeks of selling.”
Charts Courtesy Ole Hansen Saxo Bank
Gold Mining Costs & The Price Buyers Are Willing To Pay
Mining costs are not uniform. But, in relation to substantial volume producers, indicated all in costs are between $950 and $1150 per oz. This price range corresponds with the prices buyers are currently willing to pay. If gold buyers are not prepared to pay a price that rewards production supply will fall, demand will exceed supply and the price will stabilise at a level that rewards producers.
The gold price spiked to over $1900 between 2007 and 2011 when gold was being over hyped as a safe haven. In spite of the severe correction that followed the prophets of doom continue to hype gold relentlessly. Claims that China is on course to imposing a new gold standard to strengthen its credentials with the IMF is the latest absurd pitch.
Moderation, Motivation, Strategy & Timing
The Goldwatcher pitch has been that gold is well described as The Stateless Money Franchise. Moderation has been our Golden Rule and still is. Sensible motivation, strategy and timing are of course golden rules for all investing.
Gold is out of favour now with the investors who can access a range of alternative financial hedges and diversification opportunities. However gold remains on the agenda for anyone interested in owning an asset with a different risk reward profile to other financial assets. In this context the case outlined in The Goldwatcher for owning gold as insurance against the unexpected and unthinkable remains compelling .
THIS WEB SITE IS NOT ADVISORY. PLEASE READ OUR OUR DISCLAIMER ON INVESTMENT ADVICE
Surging Stock Exchange speculation in China
The Chinese are not speculating in Gold and not buying cars. China’s auto sales are slowing because people would rather plow money into stocks. Dealers are cutting prices to move inventory.