China’s Domestic Gold Prices May Weaken Further on Renminbi Appreciation, U.S. Economic Recovery
By Interfax-China
10 Apr 2008 at 10:10 AM GMT-04:00
resourceinvestor.com
SHANGHAI (Interfax-China) -- Domestic gold prices may weaken throughout the rest of this year, as the U.S. economy recovers and the renminbi appreciates against the dollar, analysts told Interfax today.
"There are signs that the U.S. economy is gradually recovering, and a better performance is expected in the second half of the year, which will strengthen the U.S. Dollar Index. If the U.S. dollar strengthens, international gold will weaken from the current level and cause domestic gold prices to decline," analyst Wang Zhouyi, from Shanghai CIFCO Futures, said.
"As inflation in China becomes increasingly serious, the market believes the renminbi could trade as high as RMB 6.5 per U.S. dollar this year, which would play a major role in depressing domestic gold prices. Most investment funds at the Shanghai Future Exchange (SHFE) have taken short positions, which shows that the market has little confidence in gold futures," analyst Zhao Youyou, from Tianqi Futures, said.
International and domestic gold prices traditionally bottom in June and July, and rebound in August. This year, however, a significant slowdown in the U.S. economy may cause gold prices to break tradition, CIFCO's Wang said.
"If gold prices fall to a very low level at the end of the second quarter, led by the rebound of the dollar, gold prices may stay at that level and not revisit record highs for the rest of 2008," Wang said.
"In near term, international gold may rebound to $950 per ounce and Shanghai gold has strong support at RMB 200 ($28.53) per gram," Zhao, from Tianqi Futures, said.
Analyst Li Sheng, from Hexun Futures, is not as optimistic, and believes domestic gold prices may test RMB 180 per gram ($739.94 per ounce) in 2008, amid a stable global economy and political environment.
The International Monetary Fund announced on Monday plans to sell more than 400 tonnes of gold, while China's Central Bank is adopting a step-by-step strategy to increase gold reserves instead of mass purchases over a short term, despite the weak U.S. dollar. Both factors came as a surprise to the market, which has sent gold prices tumbling.
London spot gold recorded a historical high point at $1,032.90 per ounce on March 17.
Spot gold AU (T+D) ended at RMB 208.95 ($29.88) per gram on the Shanghai Gold Exchange today.
The most traded 2008 June gold contract on the SHFE went up RMB 3.71 ($0.531), or 1.82%, to finish at RMB 207.50 ($29.68) per gram today.
Commentary
Where do I start? The chances of a recovery in the U.S. before the end of this year are, at best, very remote. Inflation is gold friendly. A stronger RMB, I would suggest a level nearer 6.30, will benefit gold as it becomes more attractive to new investors.
Central banks have been reducing gold reserves for years. The IMF stated its intention to sell gold in 2007 when price was about $420/oz. If the IMF does embark on a program of selling, central banks would not be able to sell.
Furthermore, such a sales program would be activated over a multi-year period, not simply dumped on the market and, as such, with demand rising faster than production, the excess with be comfortably absorbed.
© Interfax-China 2008. For further information regarding Interfax China Commodities Daily Reports, contact David Harman at david.harman@interfax-news.com. Interfax also publishes a comprehensive China Grains & Soft Special Report in March 2008, contact David Harman for details. |
