China's Gold Trading Return Makes Big Difference, 2014 Imports Estimated at 130% of Consumer Demand

EDGWARE (Scrap Monster): Gold Trading’s return to Shanghai after the Chinese New Year saw prices add $10 per ounce Wednesday, but the metal then edged back in London.

Gold priced in Dollars slipped back to $1204 as US Fed chair Janet Yellen began the second day of her semi-annual testimony to Congress.

Her opposite number at the European Central Bank, Mario Draghi, was due to speak to the European Parliament later today.

Major Western stock markets traded flat near record highs as Greek and German politicians disagreed over how far Athens' new government has retreated from its anti-austerity demands.

European bond prices meantime rose, nudging yields lower, after Germany raised new loans at negative interest rates for the ninth time this year.

New data earlier showed activity in China's manufacturing sector little changed in February from last month, but new export orders dropped at a 20-month record according to the HSBC/Markit PMI report.

Returning from the week-long Chinese New Year holidays, trading on the Shanghai Gold Exchange today saw premiums above comparable London quotes rise to $4.30 per ounce from below $3 before the break.

Volume in the main domestic gold contract stayed light, but trading in the free-trade zone's kilobar contract – launched last autumn to attract foreign banks – rose near record levels, equalling more than one-fifth of the larger contract's turnover.

"What a difference [China's return] made" for global gold trading, says brokerage Marex Spectron's London office.

"Gold [had] opened in Asia around $25 lower from where China last saw it," says Swiss refiner MKS, also noting Wednesday's $10 rise on the "good demand evident throughout the entire session."

Gold bullion imports to China last year fell between 8-16% from 2013's likely record, says a new estimate from analyst Matthew Turner at Australian bank Macquarie.

Totaling between 1,150 and 1,350 tonnes, Turner's net import estimates weigh at least 30% greater than the 2014 private household demand reported three weeks ago by the China Gold Association.

Added to China's reported gold mining output, total supplies to the world's second-largest economy reached perhaps 1,770 tonnes on Macquarie's new estimates – twice the level of jewelry, bar and coin demand reported a fortnight ago by market-development organization the World Gold Council in its full-year Gold Demand Trends for 2014.

"2013 was exceptional," says the latest weekly commodities report from French investment and bullion bank Natixis, "in channelling outflows from physically-backed [trust funds] to Asian buyers, resulting in huge demand for remelting of 400oz bars into smaller kilo bars preferred by Asian jewelers and investors.

"Nevertheless, the drop in gold prices has [now] reduced scrap supply" both from Western investment holdings and from households trading in old gold jewelry to raise cash.

Courtesy: www.bullionvault.com