China gold demand rises as economic questions multiply

The U.S. Comex gold futures (COMEX:GCG14) rallied beyond $1,250 on Monday after last Friday's weak U.S. jobs report. Both the 10-year U.S. government bond (CBOT:ZNH14) yield and the Euro 10-year government bond yield fell about 10bp since last Thursday. On Tuesday, the gold futures fell 0.46% and declined another 0.40% during Asia's Wednesday morning as stocks have rebounded. The S&P 500 Index (CME:SPH14) dropped 0.18% while the Euro Stoxx 50 Index rose 0.53% in the past two days.

Busy Data Week in the U.S.

The weak December U.S. payrolls report gave a lift to the gold market last Friday. Payrolls rose 74,000 compared to 241,000 in November. The unemployment rate fell 0.3% to 6.7%. The weak job report was largely caused by the bad weather, which boosted consumer spending in Q4, especially winter goods and internet sales. The December retail sales rose 0.2% compared to an expected rise of 0.1% while the Michigan consumer sentiment index jumped more than seven points to 82.5 in December. Traders will watch closely the U.S. CPI, housing starts and the industrial production data this week. Recently, Fisher and Plosser, two of the most hawkish Fed governors and voters in 2014, supported a swift termination of the QE program this year.

Concerns on Chinese Growth and Commodities Demand

With structural reforms, economic growth rebalancing, and environmental and debt control all supposed to move forward this year in China, the market is watching closely what type of growth rate the government will set in its March annual meeting. Cash crunch in the interbank market in China has slowed credit growth in the second half of 2013 as China began to tackle its debt overgrowth. The 2013 aggregate financing reached RMB 1.23 trillion, down from RMB 1.63 trillion in 2012. Gold demand has been increasing before the start of the lunar New Year on Jan. 31 as contracts traded in the Shanghai Gold Exchange jumped to a one-week high on Monday according to Bloomberg. The Chinese growth rate and its demand for gold are key factors for prices for gold as well as other commodities. Last year, the Chinese imported an estimated 1,000 tonnes of gold, more than offseting the decline in the gold-backed ETP holdings.

About the Author
Austin Kiddle

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.

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