Gold
Prices Find Support From China By Alix Steel | 08/03/10
- 02:32 PM EDT
NEW YORK (TheStreet) -- Gold prices rose
Tuesday as China announced plans to expand the gold market
in the country, and bargain-hunters took advantage of lower
prices.
Gold for December delivery settled $2.10
higher to $1,187.50 an ounce at the Comex division of the
New York Mercantile Exchange. The gold price Tuesday traded
as high as $1,193 and as low as $1,181.60. The U.S. dollar
index was slipping 0.38% to $80.63 while the euro was rallying
0.32% to $1.32 vs. the dollar. The spot gold price Tuesday
was rising more than $4, according to Kitco's gold index.
With gold prices trading $75 off their record
high of $1,264 an ounce, many investors were taking advantage
of the current price decline to buy gold at cheaper prices.
Gold is stuck in a broad trading range from $1,160 to $1,200,
which is attractive for many price-sensitive markets like
China and India.
Also buoying confidence in the gold sector
Tuesday was a supposed statement from the People's Bank
of China that it would allow more banks to import and export
gold in order to expand the gold market in the country [although
finding the actual report was difficult].
A press release from the Chinese State Council Web site
said the central bank was expanding the Chinese gold market
to "increase the competitiveness of domestic financial
markets while broadening investment channels for ordinary
customers." Reportedly, China is also debating allowing
foreign suppliers to "provide gold bullion directly
for the Shanghai Gold Exchange."
"These latest steps in the process
of deregulation of the gold market in China are extremely
encouraging and seem certain to lead to increased gold demand
in a country that has recently been contending with India
for the position of the largest consumer of gold in the
world," says George Milling-Stanley, managing director,
Government Affairs, World Gold Council.
China is already one of the largest gold producers in the
world and a leading consumer. China bought so much gold
in 2009 that it equaled 11% of global gold demand.
"As the Chinese let their currency
float, it's prudent to let their people buy more gold,"
says Frank Holmes, CEO of U.S. Global Investors. "And
timingwise, this move fits into a bigger picture on seasonality.
The summer is usually the lowest time of the year for the
gold price, so it's the best time to buy."
China's central bank currently holds 1,054 tons of gold,
and in the first quarter of 2010, jewelry demand in the
country grew 11% to 105.2 tons, according to the World Gold
Council.
The council also forecasts that Chinese
gold demand could double in 10 years from $14 billion to
$29 billion, as official buying is accompanied by personal
consumption from the growing middle class. Tuesday's news
from China points to an expanding gold trading market as
well, which has many analysts anticipating increased demand
and higher gold prices.
"I do believe that there'll be more trading interest
[in gold]," says George Gero, vice president of global
futures at RBC Capital Markets. Gero explains that this
trading interest could help offset any central bank or IMF
gold sales in the future. "But I think for now gold
is suffering from both summer doldrums and loss of trading
interest.
For the short term, gold will look to equities
and the U.S. dollar for direction. The dollar has been coming
under pressure recently as investors gain more confidence
in the euro and as rumors fly that the Federal Reserve might
resume lending money to the U.S. government as the economic
recovery struggles to gain traction. A weaker dollar makes
gold, a dollar-backed commodity, cheaper to buy in other
currencies, which has been helping to support prices during
an otherwise lackluster buying season.
The other factor for gold is investors'
ability to tolerate risk. Stronger corporate earnings have
been undercut by weak economic data like today's flat personal
income and spending reports for June. Traders will be looking
to Friday's U.S. unemployment number for direction on the
economy. Although job growth tends to lag corporate spending,
any risk aversion could prompt another flight to safety
into gold. Gold becomes an attractive asset as investors
look for a more secure place to put their money. However,
a better-than-expected jobs number could cheer investors
and lead them to dump gold for more risky stocks.
Silver prices settled flat at $18.42 while
copper closed down 3 cents to $3.35.
Gold mining stocks, an alternative way to
invest in gold, were mostly higher. AngloGold Ashanti(AU)
was up 2.94% to $41.30, while Freeport McMoran Copper &
Gold(NEM) was slipping 1.39% at $73.76. Other large gold
stocks New Gold(NGD) and Gold Fields(GFI) were trading at
$5.06 and $13.87, respectively.
Kinross Gold(KGC) was sinking more than
5% to $15.37 after the company announced its purchase of
junior miner Red Back for $7.1 billion, which will give
the company several large gold projects in West Africa.