Will Falling Demand from China Adversely Impact Gold?



Increasing gold premium

Gold has reached a ten-month low, with the federal interest rate pushing the yield-bearing precious metals lower. The slide in the precious metals started after Trump’s victory, due to the rising US dollar. The drastically lower prices could have led to an increase in demand, but this did not happen.
The demand for gold has been weak in India and China. The cash crunch in India contributed to the falling demand. In an attempt to constrain the outflows of the Chinese yuan, the Chinese have curbed the import of gold. The yuan was the weakest it’s been in almost eight years. According to the Shanghai Gold Exchange, China allows only 13 banks, including three foreign lenders, to import gold. Gold premiums in China surged to their highest in nearly three years, likely due to the supply shortage.
china gold

The largest gold market

According to Thomson Reuters, gold premiums in China have risen to $40 from $28–$30 the week prior. The higher gold premiums deter investors from gold. As Asia is the largest market for gold, the falling demand can result in a more negative sentiment.
Gold-based funds that have been impacted by the negative sentiment in gold include the Sprott Gold Miners ETF (SGDM) and the iShares MSCI Global Gold Miners ETF (RING). The mining shares affected by the precious metal include Eldorado Gold (EGO), Alacer Gold (ASR), IAMGOLD (IAG), and Kinross Gold (KGC).
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