China rides a gold and stock seesaw

Chinese stocks rose and gold tumbled 4% after a huge sale in China. Anyone see a connection?

A record 3.3 million lots of the metal, or about 33 tons, were traded on a key Shanghai physical contract Monday, compared with less than 27,000 lots on Friday, reported Reuters. Up till now the average July volume has averaged less than 30,000 lots.

Right after the opening of the Shanghai Gold Exchange, the price of spot gold fell to $1,088.05 an ounce — its lowest price since March 2010. By midmorning in New York, the price was above the key $1,100 support level.

“We do see a lot of people in China selling gold to get fast cash to go back into the equity market,” a Singapore-based trader told Reuters.

Meanwhile, the Shanghai Stock Exchange Composite Index rose 0.9% to 3,992 on Monday. The Shenzhen Stock Exchange Composite Index gained 1.8% to 2,230; the small-cap ChiNext Price Index jumped 2.3% to 2,840 and the Hang Seng Index in Hong Kong ended basically flat.

Gold has been falling since it ended a 12-year rally in 2013, coinciding with a strengthening US dollar. But last week’s news that the dollar hit a three-month high and the US Federal Reserve Bank still plans to raise interest rates sparked what, as of Monday, is a six-day slide in the spot price. Still even with the Greek debt crisis and China’s falling stock market, nobody expected Monday’s steep decline.

It didn’t help that on Friday, China, which has been the world’s biggest buyer of gold, said its gold reserves were up 57% at the end of June from the last time it adjusted its reserve figures six years ago. Despite the tonnage increase, gold now accounts for 1.65% of China’s total foreign exchange reserves, against 1.8% in June 2009, said Reuters.

“It looks like the end of an era for gold,” Howie Lee, analyst at Phillip Securities in Singapore, told Reuters, saying China has been grappling with oversupply after importing a record volume in 2013.

Categories: Asia Unhedged, China

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  • wheresthefreemarket

    really now? an oversupply of what? paper gold?

    Tocqueville Gold Strategy Investor Letter

    “We hypothesize that, having learned from the misadventures of the
    1960s, the policy elites, well-versed in the practice of financial
    engineering and market manipulation, would have seen no need to dump
    stocks of government gold reserves onto the market, 1960s style, to keep
    the price in check. Instead, synthetic gold, sourced in pyramids of
    credit extended to bullion bankers by central banks with little or no
    claim on physical substance, have provided a more efficient,
    better-camouflaged form of intervention. COMEX synthetic gold and
    related over-the-counter derivatives are traded in macro strategies
    implemented by hedge funds, high-frequency trades, and commodity funds
    in pair trades with interest-rate, currencies, equity futures, or even
    more exotic offsets. The volumes traded are huge, and bear little
    resemblance to actual flows of physical metal.

    “We suspect that shorting gold has come to seem like a riskless
    proposition as long as there is confidence in the Fed. Synthetic gold is
    the perfect substance for a carry trade: an easy borrow with very low
    carrying cost and little upside basis risk. Such a hypothesis, in our
    opinion, does much to explain the incongruity of a declining gold price
    while fundamentals for paper currency, and the U.S. dollar in
    particular, obviously deteriorate; while demand for physical gold has
    exceeded new mine supply for several years running; and while
    above-ground 400-ounce .995-gold bars located in London, New York, and
    other financial capitals (in cohabitation with speculative trading
    activity in paper markets) have steadily dwindled and disappeared into
    Asian financial centers reformulated as .9999 kilo bars.”

    Hathaway’s letter is posted at the Tocqueville Internet site here:

  • ted

    China is fine.They and Russian have been building their physical Gold Supply for years.Unfortunately,as for the West.Who knows if they have any Gold.The Germans asked for their Gold Back.But,the US said,”they would return in a few years”.Like that is going happen.Germany has begun to use digital currency in parts of Germany.France is already trying to outlaw using Cash.Texas set up a Bullion Bank.They too want their Gold from the Federal Reserve in New York.They are still waiting.There are number of Countries who want their Gold from the US also.Not only that.There was request for paperwork regarding the gold amounts in Federal Reserve let alone Fort Knox.They said, “they could not find the paperwork”.Yeah Right.That’s why Shtf soon.From other Independent Articles.China will soon Back their Currency with their Gold.Both BRICS and AIIB will be operational.As planned.Even with IMF.”Yuan will take over the Dollar”.Maybe sooner then later this year.US is only a few weeks away from raising interest rates as foretold in some other Articles.The Propaganda Mainstream Media Newa will paint that the losing of the PetroDollar is good thing.And the fools in Amerika will believe it.There is a that 76 Trillion Dollar Derivative Problem.That’s bubble about to burst anytime.That’s USSA.That does not include Derivative Bubble in Europe.The World been in a hurt soon.