Fresh fears about the recovery of global economy pushed gold prices up to $1370.50 (13.30NY) on Wednesday. Tensions in the Ukraine do not look set to ease any time soon, but the real bull was on news of a 5 per cent drop in China copper.
Gold started the day with a value of $1349.50, but following weak economic data in China broke the $1360 resistance by lunchtime in London and the $1370 mark by the time Wall Street were tucking into their corn dogs.
Trading has been tentative this week with analysts keeping tabs on events in Ukraine. Although the crisis has seen European markets decline, traders are optimistic the problem will be resolved and have balanced their investments with precious metals.
Chinese economy on brink of crisis
A greater concern for traders came from the Far East yesterday as industrial commodities in China showed a 5 per cent drop and the yuan slipped 1.5% against the dollar.
The slowdown in China had previously been pinned on the break for the Lunar New Year holidays, but it has emerged that other more powerful factors are influencing the Chinese economy.
In China it is a common practice for firms to invest in copper as a security for funds they borrow from the bank. However, now are defaulting on payment the terms of the loan deals are starting to unravel and the country is facing a credit crunch crisis.
Slowdown in China
Economic data for February revealed a drop in exports which saw the Asian markets take a tumble at the beginning of the week. A decline in industry, concerns over the state of the corporate sector and defaults on copper has heightened fears.
If Thursday’s retail sales and industrial production figures also show weaker than expected numbers global markets will suffer despite the turnaround in the US. China could go from being an economic super-hero to the weakest global link.
A collapse of the Chinese yuan will threaten to land the global economy into crisis again, and with the dollar and Euro being held up by events in the Ukraine, the recovery of the global economy is being held up. Banks will therefore keep interest rates low to try and stem the risk of hyper-inflation.
2014 had promised to be a great year for long-term investors to add gold to their investment portfolios, but geo-political interruptions and weak economic data from the world’s two largest economies has turned market sentiment to the safe-haven of gold.
Although investors may be disappointed not to be given the opportunity to take advantage of a weakening precious metal market, uncertainty over the strength of the global market means gold is still a wise investment. A credit crunch in China will have reverberating consequences and with so many countries in debt a total collapse of the world’s economy cannot be ruled out.
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