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How Is China’s Economy Related to Gold?

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Gold and real interest rates

On Thursday, October 15, 2015, gold jumped to its highest level in almost three and a half months. The climb is likely related to the struggling world economies across the globe. Amid the struggling growth in China, Europe, and other countries, the Federal Reserve seems to have put a hold on raising the interest rate in the US. The rate hike would have curtailed gold demands, as the precious metals are non-interest bearing. Other investments in bonds and equities provide cash flow, whereas precious metals don’t. The below chart shows the historical relationship between gold prices to the real interest rates in the US.

Gold and China

Gold prices were marginally down 0.87% on Monday, but the five-day trailing returns remain positive. Gold futures have gained 0.25% in the past week. China’s slightly better-than-expected third quarter economic growth was a little negative for gold. The growth could dim the precious metal’s safe-haven demand. Gold futures on COMEX touched lows of $1,168.30 on Monday, October 19.

After reporting an unchanged level for more than six years, China began updating its reserve figures on a monthly basis in June. China added around 480,000 ounces of gold to its reserve in September 2015, according to the PBOC (People’s Bank of China) on Friday, October 16, 2015. The country added nearly 19 tons of gold to its reserves in July. China’s gold reserves stood at 54.93 million troy ounces at the end of September. The figures are up from 54.45 million troy ounces at the end of August as reported by Reuters.

Gold companies that went up on surging precious metals prices in the last month include IamGold (IAG), Pan American Silver (PAAS), Primero Mining (PPP), and New Gold (NGD). These four companies contribute 5.3% to the VanEck Vectors Gold Miners ETF (GDX).

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