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China Keeps an Upper Hand Influencing the Precious Metals Market

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Jan. 19 2016, Updated 5:54 p.m. ET

Turmoil in China

The recent Chinese market rout has held its ground since the start of the new year. This has kept the price of gold in check. First, weak Chinese manufacturing data weighed down the overall performance of the country, including its stock market. Chinese stocks propelled downward, pulling world equity markets lower. This resulted in a major stock market rout.

The Chinese markets crashed the circuit breakers on January 7, 2016, which resulted in a trading halt. But then, Chinese trading authorities nullified these circuit breakers.

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Bears of the markets remained active, playing their game further in the equity markets and strengthening precious metals. The graph below shows how the plunge of equity markets pulled up precious metals. The price of gold in the United States is predicted by the SPDR Gold Shares (GLD). The Chinese stock market is predicted by the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR).

[marketrealist-chart id=977376]

Precious commodities

With the unruly stock markets in China, global equities were adversely affected. China is the second-largest economy and also a number-one buyer of most raw materials. The volatility of the overall markets witnessed a rise, and the commodities markets, predicted by the S&P GSCI (Goldman Sachs Commodity Index), took a steep fall of 10.4% since the start of 2016.

Gold and silver rose 2.9% and 0.78%, respectively, since the beginning of the year. The rise in these precious metals is due to an increase in the haven demand. Platinum and palladium, industrial metals that are used in catalytic converters for automobiles, fell 7% and 13.3%, respectively.

Mining companies such as Cia De Minas Buenaventura (BVN), Kinross Gold (KGC), and Iamgold (IAG) have fallen 12.6%, 23.7%, and 6.3%, respectively, during the past one month. The ups and downs in precious metals most likely resulted in a share price loss for these miners.

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