Trading gold at four-year lows: Bullion Capital guest post

The following guest post has been provided by Ryan Case, Head Of Institutional Sales at Bullion Capital. Bullion Capital offers a global physical bullion exchange, with an online platform – MetalDesk – for precious metal traders and investors.

Unless you’ve been holidaying on a desert island over the last two weeks, with no access to financial news, then you’ll know that the equity markets have recovered their lost ground and are approaching near record highs globally. Or, in the case of the USA, equity markets have actually posted fresh record highs. And as sure as night follows day the price of gold, in a near perfect negative correlated move, has posted multi-year lows…

Ryan Case Bullion CapitalNow if you’ve suddenly discovered the market for trading and investing in physical gold then you might be tempted to buy at these recent lows; perceiving that the current lows are representing an unmistakable bargain price.

However, if you’re currently holding a substantial amount of physical gold, either domestically, or through vaulting services, you may be feeling a little nervy with regards to adding to your present holdings. So as we scour the market for physical gold trading ‘action’, are there any clues out there that we can use to determine as to when it may be an astute time to re-enter our physical gold buying community? The Chinese may hold the answer…

falling gold priceAs gold prices drop to close on four year lows Chinese buyers, in what is after all the world’s leading market, aren’t being tempted to buy just yet, which could be suggesting that prices may still have further to fall. When gold prices are generally in a slump, Chinese buyers usually move to arrest the collapse, however, that doesn’t seem to be happening this time as the current market decline has seen the price of gold lose more than a third of its value in approx. two years, to circa $1,173 an ounce.

Currently prices on Shanghai’s Gold Exchange, globally the biggest platform for physical trade, are at a discount of $1 an ounce off the global benchmark, falling from premiums of $1-$2 an ounce from the previous week. World gold prices slid $25 an ounce last Friday as the U.S. dollar strengthened. Chinese buyers still aren’t entering the market and many analysts are suggesting this is evidence that the price of gold may have further to drop.

At the current time there’s not much evidence of increased demand, dealers at importing banks in China and traders told the Reuters news agency on Monday, referring to when Chinese buyers led a rush to buy jewelry, gold bars and coins when prices slumped by circa $200 an ounce over two days in 2013.

We’ve not seen any significant physical demand on the back of the recent price drop, this could be a worrying sign for prices as Chinese buying was the only phenomena that supported the market during sell-offs last year, whilst China finally overtook India as the biggest gold buyer. Demand has dropped by more than a fifth in the first nine months of the year, according to the China Gold Association. Based on historical precedents, investors could do a lot worse than watch for clues of increased buying demand from China as a reason to re-enter the market.

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