Gold Price Heads To The Bottom
London (Nov 21) Summary: •China’s demand for gold remains high. •US economy in 2016 will need new drivers, which will make Fed’s monetary restriction process gradual.
•First hike in federal fund rates partially incorporated in US. dollar pricing.
Release of the minutes of the FOMC's October meeting convinced the markets that the Fed is ready to normalize its monetary policy, but intends to raise federal funds rate gradually. This led to short-term longs in gold. While there are mixed conditions in the physical metal market, a strong US dollar and subdued global inflation outlook predict a continuation of the bearish trend, at least at the turn of 2015-2016.
While ETF owners are vividly responding to changes in XAU/USD price dynamics, China continues to buy gold. Imports from Hong Kong reached a peak in the last 19 months; PBoC is increasing the volume of its gold reserves; withdrawal of precious metal from warehouses in Shanghai is increasing consistently. The reasons can be found in the increased risks faced by Chinese investors: risk of yuan devaluation restrains them from increasing their deposits, while the summer collapse of Shanghai Composite makes investors wary of equity investments.