What the Chinese Market Could Mean for Gold Price

17 Apr
Chinese Market and Gold

What the Chinese Market Could Mean for Gold Price

Stronger Dollar-Eurozone Fears

Is China Becoming an Even Bigger Player in the World’s Gold Market?

China is buying gold...again.

Despite the price dip in gold this week, other market trends point towards future increases in demand that could drive prices up. China, with the world’s second largest economy, is already an important power player in the gold market, and is set to increase precious metals acquisition even further. China is the largest producer and consumer of gold in the world with its 1,000 tons annual production and 540 tons annual consumption. Chinese production accounts for around 30 percent of the world’s demand. With recent low gold prices, China has started buying up even more international gold assets, and its leading gold companies have said they will expand acquisition even further.

Why this matters to precious metals investors:
China holds a large portion the U.S. debt, but has recently been moving towards dumping it due to its unstable nature. Gold is a more attractive and value-assured holder of wealth than bonds. Global security risks including economic downturn, cyber espionage and terrorist threats are drivers for government demand for safe haven investment. If Chinese demand continues to increase, this could boost future gold price rallies.


 

Stronger Dollar and Profit Taking Hits Gold This Week; Silver Price Pushes Higher Still

Strong Dollar Tug of War

Gold prices saw some push back this week against a stronger dollar and stock market as U.S. monetary policy uncertainty increased volatility. Some market analysts think this is due in part to unwillingness from traders to accept that the Fed would not be raising interest rates, despite recent assurances from the Fed that they would not. Were the Fed to reverse this policy, strategists believe it would not be sooner than end of the year. Some of the pullback on gold was also due to investors’ profit taking on Wednesday and a surge in risk appetite in the market.

Despite gold’s price dip this week though, silver performed well and hit nearly a six-month high this week.

Why this matters to precious metals investors:
This could likely be a short term set back for gold. If the recent, cautionary Fed policy holds, trader expectations will eventually reset in line with the market realities. Silver prices are influenced by many of the same factors as gold, so its strong week shows positivity for the precious metals market.


 

Silver Overtakes Gold as Best Precious Metal on China Confidence

silver price overtakes gold

Silver’s performance this week has made it the slightly stronger performing metal this year over gold. This week’s silver rally has given it a 17 percent increase this year with gold at 16 percent for 2016 so far. This is the first time since 2012 that silver has seen a better performance than gold. Silver’s rally was in part due to positive economic data coming from China this week regarding industrial and trade output. In March, Chinese exports rose for the first time in nine months and imports were not as low as anticipated. Like gold, silver benefits from low interest rates and a weakened dollar. However, it also has a greater number of industrial applications that can drive demand, so the Chinese economic data this week has benefited the metal.

Why this matters to precious metals investors:
Like gold, silver is valued as a safe haven investment against turbulent times, which is part of the reason for its rise in performance this year. Silver’s wider range of uses in industry also factors into global supply and demand, so silver can see more movement at times than gold. The industrial market factors and Fed policy indicate positivity for the metal over the year, making now an optimal time to diversify with silver.


Gold’s Resurgence: Who’s Buying Gold and Why?

who is buying gold and why?

An article published this week in the British Telegraph succinctly outlined some of the various factors that are driving gold this year. A notable trend is that central banks have been increasing their purchasing of the metal since the financial crisis, and this purchasing accelerated during the latter part of 2015. A variety of economic and geopolitical factors are increasing global uncertainty this year, which makes safe haven investment in gold more desirable than riskier asset or stock options. Cautionary monetary policy is becoming the trend; while the Fed promises low interest rates in the U.S., banks in Europe and Japan also pursue caution and negative interest rates.

Why this matters to precious metals investors:
The Telegraph article also highlighted an increase in U.S. Mint production of gold bullion as demand surges and the rise in numbers of British investors seeking to diversify with physical gold. This shows the universality of gold’s appeal as a wealth preservation investment. As the world becomes more volatile and the future more precarious, governments, central banks, and average individuals alike are seeking out gold as economic protection.


Here are some articles from the web discussing the topics in this week’s post:

Is China Becoming an Even Bigger Player in the World’s Gold Market?
Read Here

Stronger Dollar and Profit Taking Hits Gold This Week; Silver Pushes Even Higher Still
Read Here

Silver Overtakes Gold as Best Precious Metal on China Confidence
Read Here

Gold’s Resurgence: Who’s Buying Gold and Why?
Read Here


 

As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at  602-955-6500 or toll-free at 877-354-4040.

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