China News Has Effect on Gold Coin Prices

March 9, 2010 – News out of China has had both positive and negative effects on gold coin prices, with government foreign currency comments potentially having a negative effect and the discussed revaluation of the Yuan having a positive one. Gold prices fell today, ending the US session at $1,123.20 per ounce.

"News is mixed" reports Wolfgang Wrzesniok-Rossbach at German refining group Heraeus, citing a potential increase in Chinese currency and uninspiring Chinese jewelry demand. Even with that, senior ANZ analyst Mark Pervan said, "Gold’s still trading above the 50-and 100-day moving average, which is encouraging."

“It is, in fact, impossible for gold to become a major investment channel for China’s foreign exchange reserves. I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion [of $2.4 trillion in reserves],” Yi Gang, director of China’s State Administration of Foreign Exchange said. Investors had hoped China would expand its gold coin holdings to offset its paper currency reserves.

Director Yi also made reference to the Chinese Yuan, saying that Peking would keep the exchange rate “basically stable” and leaving the door open for a potential increase. On this news, Scotia Mocatta stated, "Should it come to such an appreciation of the Yuan, gold would initially become cheaper locally [in China, and thus] drive up demand again." It is estimated by Yi that private Chinese citizens hold “much more than 3,000 tonnes of gold,” underscoring the size of the Chinese gold market.

Soft foreign demand in the Chinese market will likely have a dampening effect on gold coin prices; while a revalued Yuan could allow demand to far exceed supply. "China’s domestic gold prices are related to global prices, so Chinese consumers will face higher prices and they won’t like it," notes Martin Hutchinson at Prudent Bear.

Kevin Johnson

Senior Staff Writer –

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