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Determining Gold Premiums from India and China

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Oct. 14 2015, Published 9:40 a.m. ET

Approaching 200-day average

Gold prices are trying to reach the $1,170 mark, and the technical support level of its 200-day moving average as of October 12, 2015, now seems to be within reach. Prices are well above the 100-day moving average price of $1,142 per ounce. The trading price of gold futures on Comex, the commodity division of the New York Mercantile Exchange, gained by 0.74% on Tuesday, October 1, closing at $1165.40 per ounce. Prices have thus extended an increase of approximately 4.50% since the end of September.

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Physical demand premiums

Physical demand premiums for gold have been an important indicator for overall demand. These are used mainly to understand demand structures from countries like India and China. According to the London spot market statistics, India’s physical premium was close to $7 per ounce of gold, as of Monday, October 12. China seems to be still picking up its physical demands for gold after returning from its “Golden Week” holidays. Premiums in China are trading at around $3.5–$4.5 per ounce of gold.

But factors affecting the US economy seem to dominate gold prices, and we can’t forget that the most crucial price determinant for gold has been the US interest rate hike conundrum. With the dovish Fed minutes from the first week of October 2015—and only one out of ten Fed members voting in favor of a hike—liftoff seems far off, at least for the current year.

Gold investments

Other gold investments that are affected by changes in the US economy include the Sprott Gold Miner ETF (SGDM) and the SPDR Gold Shares (GLD). Both these ETFs have risen in the past month due to surging bullions. At the same time, we’ve seen mining companies follow a similar route as gold, namely a month of profits for companies like Hecla Mining Company (HL), Gold Fields (GFI), Goldcorp (GG), and IamGold Corporation (IAG). These four companies together make up 13.60% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).

Read Part 2 of this series for a look at silver in relation to gold.

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