Whilst gold premiums on the Shanghai Gold Exchange remained constant yesterday, the lower spot gold price is in part due to worries over the future gold demand from China. Data released overnight and in recent days has suggested growth and activity isn’t quite what the government had planned. Any indication that the economy is slowing suggests that there will be a fall in demand for luxury and nonessential goods.
We would be inclined to agree if the good we were discussing was a games console or a designer handbag. But we’re in fact talking about gold which is not only seen as a safe haven when an economy is struggling but ownership is encouraged by the government.
Of course, there is always the chance that Chinese demand may decline, however we suspect that the amount by which it falls will not be enough to relieve the pressure currently on the gold system. Imports this year may not be as ground-breaking as we saw in 2013, as investors wait for the gold price to stabilize however the country is still likely to top the table of gold demand this year.
ETF holdings fall
Holdings in the SPDR Trust also fell yesterday, following a few days of gains since last week. Holdings fell by just 1.2 tonnes. Whilst just a small amount any negative activity in the gold ETFs is bound to make speculators nervous given the tidal wave of outflows in 2013 and the impact this had on the gold price.
Taper knickers in a twist
Even though the announcement from the January FOMC meeting is not due for another six days, speculators are worrying themselves over the taper issue. Again. Watch out for the jobs and manufacturing numbers released later today, which will no doubt send some market participants into a spin and ‘prediction mode’ as to whether or not more tapering will be announced next week.
Ahead of the meeting next week, we expect gold to trade sideways to lower for the next few days. Judging by notes from various banks, there is a general bearish sentiment in the paper gold market.
Singapore shy away from fixing gold price
We discussed the London Gold Fix and questioned whether or not it was manipulation and if it was outdated. The London Fix, a near-100 year old system is coming under increasing scrutiny from both gold market participants and regulators. Whilst no formal investigation has been launched by any authority it is clear that those involved are getting nervous.
This anxiety has now spread to those who had perhaps seen the London Fix as an example of how to make the gold market more efficient. I’m thinking of the Singapore Bullion market Association (SBMA) who have just dropped their plans to launch a twice daily gold price fix to act as a benchmark during Asia’s trading hours. According to a Reuters story regulators and compliance officers involved in the launch are no longer keen to be part of a project based around price-fixing and benchmarking.