It was hold on to your hats in the gold market this week. The pendulum swung from up to down to back up all in a day’s trading but at the end of the week, the difference in price amount to all of $0.20 profit.
Yes indeed, gold opened the week at a healthy $1318.30 and ended on a slimline advantage of $1318.50. However, in between time, prices had plummeted to as low as $1305 an ounce. The main two reasons for the topsy-turvy charts basically boiled down to two factors; the Federal Reserve and China.
Traders in the US finally lost patience with the Fed delaying on its decision when to increase bank interest rates, and took Janet Yellen’s “considerable time” comment to mean at least another year rather than the first quarter of 2015.
The more optimistic economists on Wall Street had been holding out for an early rise in interest rates given the upbeat economic data that has been released from the US over the last three or four months.
However, the Fed’s reluctance to be more aggressive has led many investors and market analysts to raise concerns about the growth of the US economy and subsequently the actual strength of the dollar. The view is more downbeat than the data suggests and traders have been buying gold to hedge against riskier investments they plunged money into was the dust settled on the Ukraine crisis.
A little trouble in big China
A drop in demand of precious metals in Asia has seen massive sell-offs in gold this week. It was suspected this was a play-off on the Asian market to make quick gains against Wall Streets need to buy, but discrepancies in a major Chinese port that deals with metal trades suggests there are darker forces tuning the fork in the China gold imports.
The National audit office has discovered that fraudulent trades to the tune of $15.2bn were hedged by gold and other metal ores on multiple occasions by at least 25 companies in the Far East.
Furthermore, gold imported via the Shanghai free trade zone disguised data coming from Hong Kong which regulates Chinese demand for gold. At the moment the picture is off-focus but will probably not look too great once it has cleared.
Good news for consumers
The bad news in China could mean good news for consumers. Analysts expect gold prices to drop in the wake of fraudulent activity that has pushed prices higher – despite the World Gold Council making a statement that the misdeeds in the Far East will not affect the overall pricing of gold.
The scandal comes just a couple of months after an employee at Barclays was found to be fraudulently fixing precious metal prices on the London Fix which has called for a regulatory body to take greater control over gold trades.
Keep an eye on the spot charts for signs that gold prices will drop next week and if they do, this will be a great opportunity to add gold to your investment portfolio.