Gold Bullion Hit by Rising Equities & Commodity-Index Rebalancing as China's Trade Surplus Shrinks

By Carolina Curiel (ScrapMonster Author)

January 14, 2016 12:41:03 AM

EDGWARE (Scrap Monster): Gold bullion fell to 1-week lows in London on Wednesday, more than halving last week's strong rise to trade below $1080 per ounce as Western stock markets rose – and commodity prices stabilized – following better than expected Chinese trade data.

With the Yuan falling hard towards half-decade lows against the Dollar on the FX market last month, China's decline in imports slowed to 4% per year in CNY terms, while exports rose 2.3% annually.

That boosted the country's trade surplus to the equivalent of $60.9 billion, the second-largest ever when measured in US Dollars after October last year.

For 2015 as a whole, however, China's exports fell 7% in Yuan terms, the first drop since 2009, and shrank by almost one-eighth measured in Dollars.

Yuan gold prices today fell 1.3% on the Shanghai Gold Exchange, even as China's domestic stock market dropped 2.2% in  late trade to fall below 3,000 on the SSE index for the first time since late-August – the end of last summer's 45% crash.

That pulled the China gold premium above London quotes – a direct incentive for new Chinese imports – down to $1.90 per ounce by the close of trade, more than halving last week's multi-month highs.

Crude oil meantime rallied gently from Tuesday's 13-year lows below $30 per barrel.

Silver rose slightly from yesterday's new 4-week lows, also steadying as gold bullion fell but trading 4.1% below last week's peak to hold around $13.80 per ounce.

"Rebounding stock markets [have] re-exerted pressure on gold," says one futures broker's note.

Index rebalancing is also hurting gold, says Swiss investment and bullion bank UBS, pointing to the annual re-weighting of commodity-market tracker products, which this year will see "around 1.44 million ounces of gold and 15.84moz of silver...sold during [this week's] rebalancing for both the Bloomberg Commodity Index and the S&P GSCI."

That's a "sizeable" sale of gold, UBS concludes, comparing this week's 1.44moz of rebalancing to the average 2015 weekly change in speculative Comex positions of 1.98moz and the total November gold ETF outflow of 1.48moz.

On a technical analysis, meantime, "The yellow metal has retreated nearly $30 lower [since] touching the 100-[day moving average] on Friday last week," notes the Asian trading desk of bullion refiners and financing group MKS.

First forecasting a rally above $1100 at the start of December, the technical team at French investment and bullion bank Societe Generale now say gold "has confirmed short-term formations [of a] double bottom [at $1045] and inverted H&S", pointing to a near-term top of $1135 within the next 3 months.

Courtesy: www.bullionvault.com