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Gold Bullion Slips as Shanghai's New Price Benchmark Matches London's Century-Old Volume

Tuesday, June 7, 2016 6:07

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Adrian Ash is head of research at BullionVault, the world-leading gold trading & ownership service online…

GOLD BULLION prices rose in Shanghai but slipped in London trade Tuesday, retreating $10 per ounce from yesterday’s near 2-week highs as European stock markets rose sharply following better than expected GDP data.

Economic output across the 19-nation Eurozone grew 1.7% annualized in the first quarter – stronger than first estimated and also ahead of both the US and UK.

Edging down to $1237 per ounce, gold bullion also dropped 1% against the single Euro currency, erasing almost all of last Friday’s sharp gain for French, German and Italian investors.

Chinese Yuan prices for gold bullion has earlier ticked upwards again, fixing at the highest level in more than 2 weeks at Tuesday afternoon’s Shanghai Gold Benchmark Price.

Launched in mid-April, gold trading volumes at China’s twice-daily Yuan gold auction averaged 4.8 tonnes per day during its first month says Jiao Jinpu, chairman of the Shanghai Gold Exchange, in a new article published in English by the World Gold Council.

That compares with an average 5.1 tonnes matched each day by the LBMA Gold Price auctions in London, according to data from benchmark administrators ICE.

The Bank of Communications today became the fourth Chinese bank to join the LBMA Gold Price auctions, ICE announced, taking the total number of direct participants to 14.

Rising from just four members when the century-old London Gold Fixing was updated and formally regulated by the ICE process in March 2015, that still lags the 18 member institutions on the new Shanghai gold “concentration”.

That new price – found by matching the greatest volume of business through Shanghai’s new SHAU contracts – “serves as a benchmark for hedging and settlement” in China’s wholesale market, says the SGE’s Jiao, “[as well as] in financing arrangements such as gold leasing, pledging and such like.”

For private investors, he adds, “Commercial banks have started citing the Shanghai Gold Benchmark Price as the basis for their gold accumulation plans and other gold-based wealth management products, while security and fund companies have started to design their own products anchored on the benchmark price.”

Base metals trading houses and brokers in the West are meantime discussing a possible competitor to challenge the dominant London Metals Exchange according to news-wire reports, with former LME chairman Martin Abbott reviewing “a number of different options…[but] it’s really very early days.”

The parties involved, apparently “feel[ing] abused” in the words of one trader over rising fees at the 140-year old LME, “hope to do a feasibility study within a few weeks,” according to Abbott, speaking to Reuters.

In the government sector, China’s central bank failed to grow its official gold holdings for the first time in at least 10 months in May, new data showed Tuesday, while Beijing’s total foreign currency reserves fell to the lowest level since 2011 near $3 trillion.

Switching to monthly updates last July after revealing a 57% rise from 2009, the People’s Bank held its gold bullion reserves unchanged at 1,808 tonnes last month, even as prices fell 7% from the highest level since January 2015.

Gold imports to India – the world’s No.2 consumer nation – meantime fell in May for the fourth month running according to Finance Ministry sources quoted by Bloomberg today.

More than halving from May 2015 to just 31 tonnes according to the report, India’s latest gold imports are finding “hardly any demand” says one dealer in Mumbai’s Zaveri Bazaar.

“June and July are lean demand months as consumers get busy with agriculture and school activities.”

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Source: https://www.bullionvault.com/gold-news/gold-bullion-060720162

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