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April 2016 Review

Gold price could ‘explode’ if Britain votes for Brexit

This month, HSBC reported that the price of gold could ‘explode’ if Britain votes to leave the European Union in the referendum on the 23rd of June 2016. 

As the UK’s vote on the decision to remain within the EU draws closer, it is reportedly starting look increasingly likely the people of Britain will vote to remain in the 28-member bloc, rejecting the chance of a Brexit. But regardless of how things look in polls, until the referendum result is confirmed, there will always be some uncertainty surrounding the possibility of a ‘Brexit’ and what the result would mean for the UK and for Europe. This sense of uncertainty will impact the financial markets, with much attention placed on the the performance of the pound and the euro, as well as the price of gold.

And it is for this reason that chief precious metals analyst James Steel and his team at HSBC say that using gold as a hedging measure could be effective against the effects of the financial uncertainty of a Brexit. You can read more on this story here.

China’s new gold fix

The launch of the Shanghai gold exchange is being hailed as a landmark event which will challenge the century-old system of fixing the gold price in London.

Last week China launched its much anticipated new gold benchmark, which we first commented on in March 2015, with twice-daily auctions on the Shanghai Gold Exchange to fix the price of gold. In addition to Chinese banks, the 18 trading members taking part in the price-setting process, there are two foreign banks, two of China’s biggest gold miners plus the world’s top jewellery retailer.

The launch of the Shanghai exchange is being hailed as a landmark event which will challenge the century-old system of fixing the gold price in London on the London Bullion Market Association (LBMA).

Although the new gold fix on the Shanghai Gold Exchange is an interesting development, the yuan is not yet fully convertible and there are restrictions on the export of gold, so the full impact may not be felt for some time.

‘Rocketing’ silver completes best month since 2013 as gold rises

Silver had the best month since 2013 amid the dollar’s slump and an improving outlook for industrial demand in turn, gold surged to the highest in more than a year.

All precious metals rose as the dollar touched an 11-month low after weaker-than-expected U.S. economic growth cut prospects for higher interest rates. In turn this added to the appeal of non-yielding assets. Traders now predict less than a 50 percent chance that the Federal Reserve will raise borrowing costs by November, according to Fed fund futures data tracked by Bloomberg. Silver’s 15 percent surge this month has bettered gold’s advance amid optimism that industrial usage will increase as China’s economy shows signs of stabilizing. About half of the metal’s demand comes from products ranging from electronics to solar panels. The country’s silver imports climbed 39 percent in March from a month earlier, rebounding from the lowest since 2014, customs data show.

“Everybody loves a winner,” said Tai Wong, the director of commodity products trading at BMO Capital Markets in New York. “There haven’t been many great trades recently. The weak GDP yesterday, weak dollar overnight helped propel what was already a very bullish silver and gold market.”

China Gold Association releases data for Q1

China’s gold demand was 867 tons in 2015, down 7 percent from a year earlier. The downward trend continued in the first three months of this year.

The China Gold Association released data which details consumption of gold within the region for the first quarter of 2016. Consumption was reported to be about 318 tons in the first quarter, which is a decline of nearly 4 percent from the same period in 2015. Gold consumption for jewellery making also fell over 14 percent to 193.57 tonnes during the same period. However, it is notable that the sale of gold bars and coins soared in the first quarter from a year ago and that gold prices also rebounded in the first three months of the year.

As prices rebounded, China’s gold production reported double-digit growth during this year’s first quarter. Chinese gold producers are active in global mergers and acquisitions as well. For example, the China Gold Group recently purchased an 82 percent share in a mine owned by Canada’s Eldorado Gold Corporation.

India discounts narrow as jewellers reopen shops after strike

Gold demand in India improved this week as jewellery retailers reopened stores after a strike, but the world’s second biggest bullion market remained at a discount to the global benchmark as purchases across the region were curbed by higher prices.

Indian jewellers went on an indefinite strike since the start of March in protest over the reintroduction of a sales tax on gold jewellery after four years. They started opening shops from last week. “Demand is better than last week, but it is lower than expected,” said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.

“We were expecting retail consumers’ rush as jewellery shops were closed for a long time. We couldn’t see that kind of rush.” Dealers were offering a discount of up to $8 an ounce to the global spot benchmark this week, down from a discount of up to $25 last week. The discount hit a record high of $53 an ounce in late February on weak demand. India’s gold imports in March slumped 80.5 percent from a year ago to $973 million, the government said earlier this week. You can read more about this here.

Is China Stockpiling Silver?

Many market commentators are suggesting that there is the possibility that there will soon be big changes in the silver market and that China are preparing for it. After launching the new Yuan Gold Fix, the prices of the precious metals surged.

While Comex silver inventories have been declining from a peak of 184 million ounces in July 2015 to 154 million ounces in April, silver stocks at the Shanghai Futures Exchange have been increasing.

Shanghai Futures Exchange (SHFE) silver inventories were low on August 20th 2015 at 233 metric tons (mt), or 7.5 million ounces. However, silver inventories at the SHFE began to really pick up in 2016 as they surged to 802 mt in Jan from 596 mt in December. This continued at a more rapid pace during the next few months reaching a staggering 1,706 mt towards the end of the month.

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