Bullion Rallies as Shanghai's International Gold Market Hits Zero Volume, Silver ETF Sheds Metal

EDGWARE (Scrap Monster): Bullion prices rallied 1.1% on Tuesday in London from yesterday's low in Dollar gold prices, as China's stock market bounced hard following a ban on short-selling by equity traders, but Western stock markets held flat overall.

Silver bullion recovered half of Monday's 2.6% drop to trade at $14.60 per ounce as commodity prices rallied from last week's slump.

Gold held above $1090 per ounce after new data showed US factory orders expanding 1.8% in June as analysts forecast, but economic optimism slipped to the weakest in 9 months.

Shanghai premiums on gold kilobar contracts – over and above comparable quotes in London, the wholesale benchmark – earlier rose to $3.25 per ounce, higher by one-fifth from the average incentive for new Chinese imports of the last 6 months.

Trading volume in the Shanghai Gold Exchange's international market, however, fell to zero for the second time since early July, when a collapse in liquidity on the SGEI – now with 52 foreign member firms including major bullion banks HSBC, J.P.Morgan and UBS, all able to trade using Yuan held in offshore accounts – coincided with a 30% crash in Shanghai's stock market.

Reports in India – which reclaimed the world's No.1 spot for gold demand from China in the second quarter of 2015 – today said details of the government's "gold monetisation" plans to reduce imports by boosting domestic recycling have been finalized at a cabinet meeting, setting the minimum investment for new gold savings accounts at 30 grams.

At current prices, and just shy of 1 Troy ounce, that equates to 65% of India's average annual income on World Bank data.

Australia's Perth Mint meantime echoed overnight the US Mint's report of strong bullion sales in July. But this surge of private investor gold demand "is simply not significant enough to move the needle in terms of pricing," reckons a note from US brokerage INTL FCStone.

"The category that can [move] prices, of course, is the ETF/investment space, but as we have seen for some time now, outflows from these vehicles remain very much in place."

Outflows of gold from the giant SPDR Gold Trust (NYSEArca:GLD) yesterday paused after the worst monthly liquidation since 2013 took its holdings down to new 8-year lows.

Silver's largest exchange-traded security – the iShares Silver Trust (NYSEArca:SLV) – in contrast shed 15 tonnes of metal on Monday, the first liquidation by SLV shareholders since late June.

That took the quantity of bullion needed to back the silver ETF's outstanding shares some 0.1% lower to 10,150 tonnes – equal to around one-third of last year's record world mining output.

"Spot gold has consolidated sideways over the past 2 weeks," says Karen Jones at German retail and commercial bank Commerzbank in her weekly bullion technicals report, "having recently met the 50% retracement of the entire bull move up from the 1999 low.

"This was located at $1087 and represented a major long term downside target for us," Jones says, forecasting another month of "sideways" action in gold bullion prices, with support at late July's new 5-year low of $1077 per ounce, and resistance at $1131.

"Gold continue[s] to consolidate recent losses," agrees daily technical analysis from bullion bank Scotia Mocatta, also calling July's low "the key support level for gold."

Short term, Scotia's team "maintain a target of $1044...the low from February 2010."

Courtesy: www.bullionvault.com