CHART GOLD HOLDINGS IN EXCHANGE TRADED PRODUCTS COURTESY OLE HANSEN SAXO GROUP
The above chart tweeted by Ole Hansen reflects two important fundamental developments – further clearance of the overhang of speculative gold in Exchange Traded Products and a significant revival in Indian demand that needs to be reviewed in relation to the Indian Government’s initiatives to monetise gold hoarded in the country aimed at reducing future imports.
Speculative interest in gold may also have been spiced up by the current political impasse over the US Budget that must be resolved by the end of September to avoid any shut down of Government activities. This is potentially unsettling. But the issue will almost certainly be resolved without any shut down that acually interrupts significant Government activities.
Financial markets are already unsettled by these and other concerns including economic problems in China and recent revelations on Volkswagen’s deception on emission measurement – serious on its own and possibly involving other manufacturers. These concerns may also have influenced increased speculative interest in gold. But, unlike the important supply and demand factors illustrated in the chart above, they don’t affect fundamental supply demand dynamics.
No Clear Trend – Bets Both Ways Look Balanced
Chart courtesy Ole Hansen Saxo Trading
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.
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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.
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