Saturday, December 21, 2013

Gold Buying On Shanghai Gold Exchange Surges Again On Sub $1,200 Gold

Today’s AM fix was USD 1,195.00, EUR 875.33 and GBP 731.69 per ounce.
Yesterday’s AM fix was USD 1,205.25, EUR 881.16 and GBP 736.35 per ounce.
Gold dropped $27 or 2.22% yesterday, closing at $1,191.50/oz. Silver slid $0.58 or 2.93% closing at $19.21/oz. Platinum dropped $14.76, or 1.1%, to $1,316.24/oz and palladium edged down $2.53 or 0.4%, to $692.97/oz.
Gold in U.S. Dollars, 1 Year – (Bloomberg)
Gold fell below support at $1,200/oz yesterday and is vulnerable to a further test of the June 28th low of $1,180.50/oz. A close below $1,180.50/oz could lead to prices falling to $1,100/oz and the next level of support is $1,000/oz.
Gold rallied from its worst closing price in almost three years after the Fed’s decision to marginally reduce its debt monetisation programme. Gold is on track to suffer its first decline since 2000 or first decline in 13 years.
The taper is not as bearish as some suggest as debt monetisation will continue at the whopping $900 billion per annum – down from over $1 trillion per annum and the Fed will maintain near zero percent interest rates for the foreseeable future.
Chinese demand may once again stem the decline in gold prices. Chinese buyers eagerly scooped up gold at bargain prices overnight after the 4% price fall this week and 29% fall this year.
Gold volumes for the benchmark cash contract on the Shanghai Gold Exchange (SGE), China’s biggest spot bullion market, climbed to a 10 week high as lower prices led to increased buying.
The volume for bullion of 99.99% purity climbed to 19,775 kilograms yesterday, the biggest since October 8, from 13,673 kilograms the previous day, according to exchange data compiled by Bloomberg. Prices fell on the SGE overnight for a third day, losing 2.1% to 235.85 yuan a gram ($1,208 an ounce), the lowest since February 2010.
Gold in Renminbi – Shanghai Gold Exchange – 5 Years
The surge underscores robust demand in the nation set to overtake India as the largest buyer of gold. When gold entered a bear market in April, demand for jewelry and gold bars surged in Asia, even as more speculative investors cut holdings in ETF products at a record pace.
China’s shipments from Hong Kong rose to the second highest on record in October, with the amount in the first 10 months in 2013 alone more than doubling to 955.9 tons. This does not include shipments directly into China that do not go through Hong Kong.
Chinese demand for gold has surged again this year and the World Gold Council’s estimate of demand reaching 1,000 metric tons, is increasingly being seen as very conservative. Chinese demand may be much, much higher with some analysts saying that demand may be close to the 2,000 tonne mark.

Gold Fixes/Rates/Vols – (Bloomberg)
The Shanghai Gold Exchange (SGE), now the world’s biggest exchange for physical gold, plans to offer storage accounts to investors in China and internationally. This could lead to even greater flows of gold into China in 2015.
The SGE plans to  launch an international board in the pilot free trade zone to attract offshore yuan capital to invest in the Chinese mainland’s gold market, a senior official said earlier this month.
“We want to tap the opportunity from Shanghai’s pilot free trade zone and launch an international board to attract offshore yuan to invest in the mainland,” Xu Luode, chairman of the bourse, said at a precious metals forum in Shanghai December 6th.
The Shanghai exchange will establish a system that publishes daily rates at which selected market participants are willing to lend gold in the mainland interbank market, which is similar to the Gold Forward Offered Rates by the London Bullion Market Association, according to Xu.
Gold’s sell off this week was again primarily due to paper gold selling by traders and speculators on the COMEX as there was little selling of coins and bars by bullion buyers. Indeed, we have again seen more buyers than sellers this week and there has been a slight increase in demand.
Bullion premiums in western markets are flat again this week. Gold bars  (1 oz) are trading at $1,249.89/oz or premiums of between 3.75% and 4.5%, and larger gold bars (1 kilo)  are trading at $39,800/oz or premiums of between 3% and 3.5%.
Arguably, the Fed’s small taper and statement is bullish for gold as the Fed confirmed that ultra loose monetary policies and the unprecedented zero percent interest policies are set to continue. Also, the  Federal Reserve’s balance sheet continues to deteriorate which should support gold in 2014.
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