Daily Archives: September 28, 2015

China’s Market Cash And PBOC’s Measures Could Open A Window For Gold

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Recent financial mayhem in Asia could be the perfect chance for gold to recover its lost value during the last five years. China’s market crash and PBOC’s decisions, especially the multiple devaluations on the Yuan, can open a profitable window to the gold industry.

Everyone was worried and talking about Greece and its bailout trouble. In the meanwhile, China had (and still have) bigger problems. The market crash occurred recently represents a great threat to worldwide economies. Now, the disaster has been appeased and the media is optimistic about it. But devaluing three times in a row a currency as the Yuan is no good signal.

Despite the Greek crisis mentioned above, gold hadn’t the chance to rebound. In fact, it was the US Dollar which got stronger during those confusing days. It must be thanks to the FED’s promising aspirations of raising the interest rates. By the way, those aspirations were a lie or naive assumptions, because the FED chairman publicly disbanded those intentions on Bloomberg TV. That same day, gold recovered a little bit.

Even with the disappointing declarations, the US Dollar keeps growing these days. And still offers an attractive interest rate. Something gold can offer the investment. The precious metal sacrifice a return over the safety of being a safe-haven asset.

World Gold Council stated that the low prices will cause an imminent drop in gold supply. Producers will offer less and less every day if the prices keep falling in the future. This action will be taken in order to prevent higher costs. Decreasing the metal output, the prices will be forced to go up in the mid-term.

That shortage on supply would help the gold to slowly recover within the year but, that is not the greater news. Investors must need about the demand during the Greek crisis. The media stated that the European investors didn’t bet in favor of the precious metal, because the prices didn’t go up. In fact, a relevant share of the European investors did buy an important volume of gold in order to store their wealth, addressed by the panic. The only detail was that the demand wasn’t enough to raise the prices in relation with the supply.

At the same time, Chinese gold consumption drops about 3 per cent during the same period of the year. Local observers pointed out that Asian investors preferred to put their money in the Shanghai stock market, looking for short-term profits. In the meanwhile, climatic problems suffered in India affected local jewellery demand.

Why this is so relevant to the global prices? Jewellery demand represents almost 60 per cent of the total global consumption of gold but, this statistic has been affected by the decreasing demand within China and India. Those two countries represents by themselves almost the half of the gold demand worldwide. Any distortion in those countries will surely impact on the gold prices, hard.

Now, the problem that China is suffering could open a window for the gold sector. If a supply decrease is combined with a sudden Asian demand hike, caused by panic, gold prices could sky-rocket to record-high numbers, at least for this year trade.

The PBOC’s devaluations had triggered already a big purchase of gold. The progression of the situation should show more direct interaction with gold as a safe-haven for Asian investors. Despite the late aversion to the precious asset, investors are going back to the basics. Even a falling US Dollar can be seen in the near future as a cause of the financial hardships in progress. If there is any contagion effect in the next months, gold would shine again.