Gold Price 'Positive' at 3-Week Highs Over $1200 But China Premium Sinks as Saudi Bombs Yemen, Crude Oil Rallies

[The Machine]

GOLD PRICE gains of 2% as it burst above $1200 per ounce this morning faded in London trade Thursday lunchtime, with the metal edging back to 3-week highs as world stock markets extended yesterday's sharp drop in US equities.

 

Crude oil spiked overnight to 2-week highs above $50 per barrel after Saudi Arabia led a Middle Eastern alliance in bombing rebel Houthi targets in Yemen – a move condemned by Iran's government as "US-led aggression".

 

China gold premiums then dropped to two-month lows as the Dollar gold price surged at the start of London trade, gaining 1.4% between 7 and 8am GMT as the Euro currency also rose following the strongest reading of German consumer optimism in 13 years.

 

Trading above the record spike to $1.10 which followed last week's timid outlook on Dollar interest rates from the US Federal Reserve, the 19-nation single currency quickly knocked the gold price in Euros down from a brief 7-week high above €1106 per ounce.

 

US Treasury yields meantime rose further from Tuesday's 7-week low, touching 1.95% as bond prices fell.

 

"Even with some normalization," said US Fed 'hawk' James Bullard in a speech in Frankfurt, "monetary policy will remain exceptionally accommodative."

 

"Dip-buying looks likely to continue [and] the short-term outlook remains positive; however gold has a lot of work to do," says one Asian trading desk.

 

Gold's "recent price slump below $1150 per ounce may be encouraging greater demand from price sensitive emerging market buyers," reckons bullion bank HSBC's analyst James Steel, "notably in India and China."

 

Chinese inflows of gold have "been suffering from weak investment demand and a clamp-down on corporate gift giving," counters French investment and bullion bank Natixis in a note.

 

New data today said China's net gold imports through Hong Kong fell again in February, marking the eleventh year-on-year drop of the last 12 months.

 

"[Early] 2014 was exceptional, and February 2015's level is still high historically," says Australian bank Macquarie in a note on China's domestic gold imports data.

 

Capturing flows directly to Shanghai which replace at least some of the flows previously going through Hong Kong, the Chinese customs data show a drop of 30% in gold imports so far this year from January-February 2014, Macquarie says.

 

Today's new Hong Kong data showed a 27% drop in net gold inflows to China year-to-date.

 

"There will be more competition and that will drive down premiums," the Wall Street Journal quotes Albert Cheng, managing director for the Far East at mining-backed market development organization the World Gold Council, commenting on last week's news that Beijing will ease gold import rules for more companies from 1 April,

 

Gold premiums on Shanghai's busiest domestic gold contract slid Thursday to equal $1.60 per ounce by the close, down below half the last 6 months' average as world prices rose.

 

China now faces "the last one kilometre" to making its Yuan curency fully convertible, State Administration  of Foreign Exchange (SAFE) policy head Wang Yungui told a news conference today.

 

"It's viable for China to steadily achieve capital account convertibility, but controlling risks remains the top priority."

 

Exports of wholesale gold bullion bars are currently banned by Beijing. Exports of jewelry were estimated by Macquarie at perhaps 750 tonnes – more than one-sixth of accepted global demand figures – for both 2013 and 2014.