SPDR Gold Trust (ETF) hit its lowest level since 2009 on Monday morning as traders continued to engage in a sell-off of the yellow metal. Most of the analysis around the drop in gold prices has focused on the coming US rate hike and its effect on investment behavior. There is another part of demand the market, however, and it’s not looking healthy either.
The World Gold Council had an unfocused view of how much China loved gold, and it’s hurting the price of the metal right now. Scared investors look to gold in order to keep their cash safe. In the west we’re seeing investors embrace more risk as 2008 seems to be lifting from the markets. In China the stock market is collapsing, but gold isn’t an option.
China doesn’t really like gold
Bloomberg Intelligence had thought that China was buying around 4-500 metric tons of gold per year since last revealing its stock in 2009. It turns out that the state purchased just 100 tons per year in the time frame. Demand in the country was thought to be very high, and the World Gold Council said in June that it was likely to go higher.
Roland Wang, China director of the group, said in a June press conference that rising demand in China could surge on the back of “an end of the stock market rally.” Mr. Wang says that “Chinese investors usually seek asset tools to prevent risks in stock markets and chase rallies in gold.”
With both stocks and gold falling in China, it’s not clear what traders are putting their money in, but it is clear that they’re not going to be chasing a rally in gold and supporting world demand for the metal any time soon.
The SPDR Gold Trust (ETF) , which trades at about the price of one tenth of an ounce of spot gold, was set to open almost 2 percent lower on Monday. At time of writing shares stood at $106.73 on Monday’s pre-market, down 1.77 percent for the morning so far.
Shares in the ETF crossed $100 in October 2009, and have not tested that level since. The financial crisis created an incredible demand for gold, but
China consumes less
Economic growth in China is slowing, and demand for gold jewellery is likely to slow along with it. India and China’s gold jewellery demand made up about 25 percent of all demand for the yellow metal in 2014, at least according to the World Gold Council.
It’s not just demand from traders that’s falling in today’s gold market, it’s demand from those in China that were supporting the market by buying decorations. China’s gold jewellery demand fell by 10 percent year over year in the first quarter.
With the price of the metal falling, GDP shrinking and the country’s stock market all but closed down, demand for jewellery may continue to slow. China became the world’s biggest gold market in 2013, but the recent turmoil may be changing its demand for the metal.
The market, and those trading the Gold price SPDR Gold Trust (ETF) clearly thinks those risks are there.