Gold’s Upward Trend Comes to an End

gold-163519_640If you’re looking forward to investing in gold, you might be pleased to know that it is set to post a weekly gain once again. However, gold fell on Friday as the dollar evened out. The price of gold had jumped on Thursday to $1,219.40 in response to attacks in Yemen. This was the highest it had been since March 2. Spot gold lightened .5% to $1,198/ounce, while U.S. gold futures for April sat at $1,199.80/ounce. The price of gold typically responds to conflict, rising in the face of strife because of its inherent stability. As of Friday gold was close to finishing the week up just over 1 percent. This has been gold’s longest positive stretch since August of 2012. There are three other reasons that the price of gold has been so high as of late. One is the uncertainty of the Federal Reserve’s monetary policy. As they move towards normalizing their monetary policy and raising interest rates, the price of gold fluctuates. If the interest rate remains low the value of gold increases. But It is anticipated that an increase in interest rate for gold might lead to less demand for investing in gold. Another reason the price of gold had been remaining high was the questionable future of the Euro because of quantitative easing of the European Central Bank. Once again people tend to plan for a future in which paper money takes a back seat to gold. Finally, the Chinese economy is encountering problems, which in turn effects the global economy, causing people to feel bullish toward the gold market. Some are still cautious over the increase in gold price, as the world’s biggest gold-backed exchange traded fund SPDR Gold Trust recorded a loss of nearly 6 tonnes to 737.24 on Thursday, the lowest level since January.

It is anticipated that with an increase in U.S. interest rates expected soon, the price of gold will continue to fall; this isn’t an unreasonable supposition since economic and financial improvements reduce the demand for gold and other “safety nets.” However, some economists argue that more than 40% of the demand for gold last year came from Asia, making United States monetary policy unimportant in the price of gold. They believe that the Asian market demand will pick up at some point this year, reflecting numbers that repeat those of last year. The process for pricing gold was forever altered on March 19. For the first time in 96 years gold prices weren’t set by a select few sitting in a quiet back room, but by an online auction that anyone could participate in. It is hard to tell what impact the process change will have in regards to the going rate of gold, but since 2011 gold prices have fallen 37%, even as those investing in gold notice the price still increasing. This seems to indicate that despite global finances, the U.S. economy is growing stronger. As this trend continues, gold’s upward trend will certainly slow down.

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Reading Signs on China’s Metals Trade

A381C2C35C9157F6B67FD07D5A200AE1In 2015, Chinese influence on industrial metal prices will be more important than ever before. Yes, they have been a powerhouse in the sector for quite some time, but what has changed over the last couple of years is their surging output after years of production capacity growth. And of the industrial metals China is involved with, copper is imported on a routine basis and plays a substantial role in their metals marketplace.

Through a skewed perspective, copper trade figures for China might be seen as a sore on the country’s manufacturing health. That being said, copper currently occupies one end on a shifting spectrum of malleable price signals regarding China’s trading practices with metals. So what Chinese trade themes are worth watching this year?

Threatening Exports

During the second half of last year, Chinese exports of base metals took off due in part to the Qingdao port scandal, which involved numerous vows around metal as collateral in China’s shadow banking sector. The conclusive effect was the flight of collateral metal from Chinese bonded warehouses to London Metal Exchange warehouses for safe-haven storage.

China flirts with the classification of products and minimally transformed metal, and uses such exports as a safety valve for surplus while raising red flags for the outside market. Their export flow of “products” soared by 20 percent to 3.67 million tons last year, and by December, reached a record high of 492,000 tons. But in January and February, exports dropped back to 379,000 tons, which are historically high and hint towards an upward trend.

The Complexity of Copper

China is continually a front-runner with any and all forms of copper imports. Their manufacturing demand drives the copper market year in and year out. Typical buyer behavior and demand for copper, both commercial and state, sees the metal as collateral. Imports on refined metals to China totaled 300,000 tons in January, and look to be slowing in February to continue on with their five-month low.

Of course, the post-Qingdao crackdown on collateral financing and buyer fallout from annual to spot contracts have the most dramatic impact on the current situation with copper. But along the way, China’s copper trade profile switch from refined metal to raw materials stirred the pot even more. All three trade segments for China with copper including refined, scrap, and concentrates will have a dramatic influence on the market in its entirety.

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Barclays Cooperates With U.S. Precious Metals Probe

barclays-bonusAs the U.S. Department of Justice (DoJ) digs deeper with its precious metals investigation, multi-national banks such as Barclays have been providing information without hesitation. The DoJ and Commodity Futures Trading Commission have 10 banks aligned in the scope of their investigation as the probe into the possible rigging of precious metals markets continues on.

Barclay’s acknowledgement of its involvement in the investigation comes after HSBC reported that the DoJ issued a request for HSBC Holdings documentation as they continue to conduct their criminal antitrust investigation. Such requests are complicating matters for a bank attempting to cut costs and improve profits while handling allegations of their traders manipulating foreign exchange markets. The bank suffered a 21-percent drop in annual net profits due to account charges, provisions and restructuring costs.

Ever since the unveiling of the Libor rigging scandal and the widespread manipulation of interest rates in foreign exchange markets, scrutiny of precious metals trading and benchmarking regulations has been tense. FINMA, a Swiss regulator, uncovered manipulation attempts of precious metals benchmarks during its investigation of foreign exchange trading at UBS last November. “The behavior patterns in precious metals were somewhat similar to the behavior patterns in foreign exchange,” said FINMA director Mark Branson.

Others involved in investigations include Germany’s Bafin, who are looking at how precious metals benchmarks are set; Britain’s Financial Conduct Authority, who are delving into gold while investigating commodity benchmarks; and of course the U.S. courts, who have multiple lawsuits filed alleging conspiracies regarding the fixing of precious metals prices. Banks involved in setting benchmarks, also known as fixes, made it clear last year that they will no longer govern the standards.

Silver benchmarks are now set by CME Group and Thomson Reuters, while the Intercontinental Exchange (ICE) will be administering new gold benchmarks. Platinum and palladium benchmarks will be handled by the London Metal Exchange.

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