Gold price climbs, net long position up for second consecutive week

Date Aug 18 2015 09:13:22 Source:

The gold price moved higher on Monday morning, while the net long fund position increased for the second consecutive week.


The spot gold price remained above the psychologically important $1,100 level – it was last at $1,117.8/1,118.0 per ounce, up $3 on Friday’s close. Trade has ranged from $1,114.0 to $1,120.0 so far.


“Precious metals for now seem to be holding on well to most of their gains following the rebounds after China’s devaluation. China’s policy shift and the fall-out in emerging market currencies seem to be fuelling some investor interest into gold as the metal can act as a non-fiat currency,” William Adams, FastMarkets head of research, said.


The key will be whether prices can push up back above $1,150, which might the prompt fund short-covering, he added.


After three straight days of yuan devaluation by the People’s Bank of China (PBoC) last week and a slight increase on Friday, the Chinese central bank on Monday set its daily guidance rate at 6.3969 yuan against the dollar, up 0.01 percent from 6.3975 on Friday.


Meanwhile, the net long fund position (NLFP) in gold increased by 2,542 contracts, or nine percent, to 32,442 from 29,900 contracts in the week ending August 11, according to the latest CFTC statistics.


The increase in the net length for the second consecutive week was essentially driven by long accumulation – up 2,986 contracts- that was slightly counterbalanced by a small increase in short positions of 444 contracts. The net length is down about 72 percent in the year-to-date.


“The spec positioning has continued to improve after investors built short positions aggressively in the past two months,” Boris Mikanikrezai, FastMarkets analyst, said.


“Interestingly, the increase in the net spec length was driven by fresh buying rather than short-covering, suggesting that sentiment may have turned bullish. That said, fresh buying needs to continue in the next few weeks in order to underpin the current rally,” he added.


In data today, Japan announced its second quarter preliminary quarter-on-quarter GDP at -0.4 percent, a decline from the previous quarter’s one percent growth.


Out of the eurozone, the region’s trade balance came in better than expected at 21.9 billion.


From the US, empire state manufacturing index and NAHB housing market index are due later this afternoon.


“Going forward we expect focus to shift back to the US this week, with the CPI and Fed minutes being important and if they both point to a potential rate rise in September gold and the complex in general will be back under pressure and may test support between $1,100-1,106,” MKS said.


In the other precious metals, silver was little changed at $15.25/15.30. The NLFP increased 8,432 contracts, or 100 percent, to 16,837 from 8,405 contracts in the week ending August 11. The net length is now down 44 percent in the year-to-date.


Platinum at $993/998 was up $4 and palladium at $617/622 edged $2 higher.


Edited by SHMET

LME MORNING – China continues to drive base metal prices, sentiment poor

Date Aug 18 2015 09:13:06 Source:

Base metals continued to react to news from China on Monday, with the majority of the complex drifting to the lower end of their ranges.


“Slowing Chinese growth and demand prospects continue to weigh on industrial commodities with prices eating into cost curves for some raising potential to production cutbacks should prices sustain downwards path,” a trader said.


Production numbers out of China have added to downward; data released over the weekend showed that Chinese production of aluminium, copper and nickel rose in July, which will do little to improve sentiment.


Aluminium increased 14.1 percent year-on-year to 2.72 million tonnes in July. This took year-to-date output to 18.33 million tonnes, up 12 percent year-on-year.


Chinese refined copper topped 663,520 tonnes in July, up 9.4 percent from a year ago. Nickel output increased 8.4 percent year-on-year to 30,704 tonnes in July.


Meanwhile, Spread action will be eyed, as this week marks ‘Third Wednesday’, when the August date will become prompt.


Several of the metals have seen tightness along the forward and nearby curve – in particularly nickel and zinc -but this has eased as the prompt date approaches.


Copper at $5,130 per tonne was down $35 on the Friday’s close in quiet conditions – fewer than 4,000 lots of copper have changed hands on Select so far. Stocks were little changed at 350,650 tonnes they were up 325 tonnes. Cancelled warrants have started to build and metal booked for removal was up 7,850 tonnes to 25,975 tonnes due to increases in Port Klang, Antwerp, Johor and Vlissingen.


Zinc at $1,822 was down $7, but still improved from the previous week when it declined to three-and-a-half year lows of under $1,800. The tightness in spreads remained a feature – cash/September and cash/October were both at a backwardation of $2.


“Before getting too bearish we would wait to see what today’s ILZSG data holds. Last month’s data release showed May was in a supply deficit after surpluses in January to April – if June is another deficit month then the market may well start to focus on the likely supply shortfall expected later this year and next year,” said FastMarkets analyst William Adams.


Stocks today were up 1,200 tonnes to 462,925 tonnes and cancelled warrants were unchanged at 70,025 tonnes.


Nickel at $10,660 was $60 higher and stocks were up 492 tonnes to 454,818 tonnes. Cancelled warrants increased 3,270 tonnes to 151,590 tonnes.


Aluminium at $1,564 was down $15 while both stocks and cancelled warrants were 8,750 tonnes lower at 3,345,600 tonnes and 1,341,625 tonnes respectively. Lead was also $15 lower at $1,735 – its stocks increased 1,600 tonnes to 203,700 tonnes and cancelled warrants fell 2,350 tonnes to 44,250 tonnes.


Tin at $15,425 was $25 lower despite an increase in tightness, its benchmark cash/threes spreads has increased to a backwardation of $40.  Stocks were unchanged at 203,700 tonnes and cancelled warrants rose 995 tonnes to 1,940 tonnes.


Steel, cobalt and molybdenum were all neglected with no changes to stocks.


Edited by SHMET

China yuan to move both ways, more 'adjustments' unlikely

Date Aug 17 2015 09:29:22 Source:

BEIJING - China's move to weaken the yuan last week could head off further similar "adjustments", and the yuan is likely to move in both directions as the economy stabilizes, Ma Jun, chief economist at the central bank said on Sunday.


The People's Bank of China (PBOC) shocked global markets by devaluing the yuan by nearly 2 percent on Aug 11. The PBOC called it a free-market reform but some saw it as the start of a long-term yuan depreciation to spur exports.


The yuan's drop last week and its increased flexibility could help "sharply reduce the possibility" of similar adjustments in future, Ma said.


In the near term, it is more likely there will be "two way volatility," or appreciation and depreciation of the yuan, Ma said in a question-and-answer statement sent by email.


The central bank would move only in "exceptional circumstances" to iron out "excessive volatility" in the exchange rate, Ma said.


Ma played down market fears that a "currency war" could be triggered by China's devaluation, which dragged some other Asian currencies to multi-year lows.


"China has no intention or need to participate in a 'currency war'," Ma said in the statement.


"There is no need to worry" that the central bank will continue to intervene in the market to support the yuan as China's economy stabilizes, Ma said.


"In the future, even if the central bank needed to intervene in the market, it may be in either direction," he added.


Ma also said that he expected the economy to grow around 7 percent this year - in line with the government's target.





Edited by SHMET

China to 'take rightful place' in gold market

Date Aug 17 2015 09:24:01 Source:

Growth in the global gold market is shifting from West to East and China should further liberalize its gold exchanges. This will allow international participation with the country finally "taking its place" in the world market, said Roland Wang, managing director for China at the World Gold Council.


Wang pointed out that the expansion of strong gold trading hubs in Asia will improve price discovery, liquidity, transparency and efficiency. This in turn will transform the landscape of the gold market which will benefit China.


One catalyst for China's increasing gold pricing power is the much-talked-about yuan-denominated gold index, expected to be launched by the Shanghai Gold Exchange by the end of this year.


This new gold index will provide competition to the London Gold Fix, which is currently the global reference point for the industry, meaning that gold buyers and sellers will look to the benchmark to determine the exact price of their specific trade.


The Shanghai Gold Exchange was established in 2002 to centralize China's gold trading. It now consists of a Main Board for Chinese traders and an International Board, which is dedicated to foreign investors.


Currently the Main Board and International Board are separate from each other because the yuan is not freely convertible and China's capital controls mean financial trades made by domestic and foreign traders have to be separate in order to help maintain currency control.


But once the yuan can be freely converted, the two boards are expected to merge and the SGE will become a gold exchange center globally, with Shanghai taking its place as one of the three major international gold exchanges, alongside New York and London, Wang said.


While China is a big consumer of gold globally, it still lacks pricing power.


Wang said Chinese banks need to increase their participation in international gold exchanges so that the demand and supply of gold in China can be reflected in prices in global markets.


"China's lack of international participation tends to directly affect China's competition for gold price-fixing power," Wang added.


"Only by involving Chinese financial institutions in the global gold fix mechanism, and by advancing (yuan-) denominated commodities to encourage foreign investors to conduct business in the China market, can China increase its gold price-fixing power accordingly."


One major milestone in China's participation on international gold exchanges is Bank of China becoming the first Chinese lender to join the London Gold Fix, among seven other banks.


Administrated by the ICE Benchmark Administration Ltd, the London Gold Fix is a twice daily electronic auction held in London which determines the benchmark gold price.


Wang said this move by the Bank of China will reinforce the connection between the Chinese and overseas markets, with the international gold price better reflecting supply and demand in China, as well as promoting the internationalization of the Chinese gold market.


"Bank of China's participation in the Gold Fix is the first step for China being the largest gold market in the world, and to become a gold trading center along with London and New York," Wang said.


In the long term China's increasing gold pricing power globally will fuel the yuan's internationalization. The International Board of the SGE looks certain to offer a range of yuan-denominated products in future for foreign investors to trade in, which in turn will increase liquidity for the yuan internationally.

Edited by SHMET

Central bank revises yuan-dollar rate

Date Aug 17 2015 09:21:10 Source:

The People's Bank of China, the central bank, raised the value of the yuan against the US dollar on Friday, the first increase after a three-day depreciation of more than 4 percent.


The daily reference rate for the Chinese currency was pegged at 6.3975 yuan per dollar, compared with the four-year low rate of 6.4010 a day earlier.


The move follows comments made by Yi Gang, vice-governor of the PBOC, on Thursday that the central bank would take necessary steps to stabilize the foreign exchange market.


According to data from the PBOC, China sold about $38.8 billion of foreign exchange last month, the highest on record, suggesting huge capital outflows and more depreciation pressure on the currency. Net foreign exchange sales in June was about $15.3 billion.


Persistent weakness in the yuan can have unintended consequences, experts said, by injecting fresh uncertainties into Asian currencies, or even affect the monetary policies of major economies.


Malaysia's ringgit plunged 2.8 percent against the US dollar on Friday, the largest drop since 1998. Turkey's lira weakened 0.5 percent. An index that tracks 20 emerging currencies declined 0.2 percent.


Market consternation arose after the PBOC announced on Monday a 1.86 percent decline of the yuan-to-dollar daily fixing, the sharpest since 1994. The drop continued for three consecutive days.


The depreciation was a result of a new regime used by the PBOC to set the reference rate according to market-oriented factors, which will correct the long-term misalignment of the yuan from its market equilibrium, said experts.


Teck Leng Tan and Dominic Schnider, analysts at the Swiss financial services firm UBS AG, wrote in a research note: "Given China's size in the Asia Pacific, the recent yuan decline will have broad repercussions for other regional currencies. We reiterate our negative stance on them versus the US dollar into the Federal Reserve rate hike cycle."


Daragh Maher, an economist at HSBC Holdings Plc, also warned: "All Asian policymakers should tread carefully with their foreign exchange policies and currencies at a time when the US Federal Reserve is seen as likely to raise rates and the risks of regional market contagion are high amid heightened nervousness."


The market also expected that the European Union and Japan may sustain its quantitative easing in the coming months, as the yuan changes may lead to weak demand in global markets and further slow their economic recovery.


"The change is a critical part of China's exchange rate reforms, rather than a macro-policy easing measure per se, but the announcement has nevertheless led to fears of a 'currency war' in the region," said Maher.


Edited by SHMET