Daily Nugget: The Great China Gold Price Fix

Following last week’s near 5% rise, the gold price looks set to gain further this week posting an estimated 0.5% gain. Despite popping over $1,300 briefly this week it does not appear to want to finish the week on quite such a positive note as those looking to buy gold adopt a wait-and-see approach.

Despite it appearing during the week that Bernanke would be leading the gold price, it looks as though the yellow metal can ignore him for a while as Japan’s election takes centre stage. Ahead of this weekend’s upper house election, speculative buying and a weaker yen saw Tokyo’s gold futures rally yesterday, with the largest contract rallying to a four-week peak.

The rush into gold investment, from Japan, is partly over concerns to changes in the tax system which will go ahead if the Liberal Democratic Party (LDP) and its New Komeito Party (NKP) coalition partner win the election, which they are expected to do.

It isn’t just futures that have received a boost but also physical gold as well. Tanaka Kikinzoku Kogyo K.K., Japan’s biggest gold retailer, report a threefold rise in sales in Q2. This exceeded its purchases for the first time in a year.

Bernanke’s no gold bull

Bloomberg report that traders are bullish for the fourth-consecutive week when it comes to gold, the longest ’bullish-streak’ in the Bloomberg survey since April. Reasons for the increased confidence in the bullish metal come courtesy of Bernanke’s comments regarding ‘no pre-set course’ for QE and declaring it was ‘way too early’ to make a call on it. The last two days have shown that Bernanke is mindful of the tightrope the US economy is currently walking on.

One person who isn’t feeling bullish on gold is Ben Bernanke who said no-one understood gold prices and that ‘one reason gold prices are lower is people are less concerned about extreme outcomes, particularly negative outcomes and therefore they feel less need for whatever protection gold affords.’

In comments to the Senate Banking Committee, Bernanke once again stressed that the plan on QE tapering was not ‘set in stone.’ But ultimately he didn’t say anything new.

These same traders also seem to have suddenly woken up to the huge demand seen in China, particularly on the Shanghai Gold Exchange, citing this as a reason for their bullishness.

The gold price, as many acknowledge, is open to manipulation. It now seems this manipulation ranges from the paper gold markets to the retail jewellery markets. In China, the country set to overtake India as the world’s largest consumer of gold, jeweller Chow Tai Fook (amongst others) is being probed for price manipulation and collusion.

“It looks like the investigation is targeting the Shanghai Gold & Jewellery Trade Association and the Shanghai-based jewellery retailers,” Larry Cho, a Hong Kong-based analyst at CIMB Securities, told Bloomberg earlier today. According to the report many shops have admitted price collusion. The Shanghai Gold and Jewellery Trade Association states prices must vary no more than 2-3% above the price it sets.

Holdings in the SPDR Gold Trust fell by 0.1%. In fact, it wasn’t a great day for gold-backed ETFs altogether as reports state that China’s two new gold-backed ETFs raised far less than originally expected. Huaan Asset Management Co. and Guotai Asset Management Co believe the fall in the gold price has prompted a ‘wait-and-see’ approach from investors.