Did the Gold Market Whiff on the Chinese Rate Hike?

http://abcnews.go.com/Business/wireStory?id=11920671

Gold and other metal prices fell Tuesday as China’s government announced it will boost interest rates, roiling currency markets and suggesting China might curtail its appetite for raw materials.

Gold for December delivery fell $36.10 to settle at $1,336 an ounce. Silver for December delivery fell 63.3 cents to settle at $23.780 an ounce, while copper fell 9.75 cents to $3.7575 a pound.

China’s interest rate hike is intended to control inflation and rapid growth even as other Asian economies move to keep their recoveries on track.

The rate on a one-year loan was raised by 0.25 percentage points to 5.56 percent effective Wednesday, the Chinese central bank said. The one-year rate paid on deposits was raised, also by 0.25 percentage points, to 2.5 percent.

The move made traders sell out of positions in gold, silver and other metals as they anticipated a drop in Chinese demand, said Carlos Sanchez, analyst with CPM Group in New York.

The GLD did not break the support of 129.51 but it did lose 3.11% as the HUI lot 5.08% which likely means that the speculative money left the market more sharply. Also down was the AMEX oil index (2.89%), AMEX Natural Gas (2.16%), and the DJ-AIG Agriculture Index(.88%).

What I found most interesting about the reasoning behind the selloff due to the rate hike is written up above in the quoted article; “The move made traders sell out of positions in gold, silver and other metals as they anticipated a drop in Chinese demand….”

I disagree with the notion that China is going to slow down the purchase of basic materials… on the basis that prices just got 2-3% cheaper.

Why else do I think this is nothing more than a head fake? Well beyond the fact that we couldn’t even take out support from the key reversal a week or so ago, there’s this:

It seems there is no end to China’s appetite for silver as the country’s silver exports are set to fall due to its domestic demand.

Beijing Antaike Information Development Co said silver shipments from China will decline from about 3,500 tons in 2009.

Customs data show exports plunged almost 60 percent to 970 tons in the first eight months. Cancellation of an export rebate in 2008 is also hurting shipments.

Reduced exports may bolster prices that are trading near a 30-year high on speculation that governments worldwide will take further steps to stimulate their economies, weakening currencies and increasing demand for assets that are a store of value. China, the third-largest producer after Peru and Mexico, revoked export rebates in August 2008 to curb use of natural resources.

http://www.commodityonline.com/news/China%E2%80%99s-silver-exports-fall-prices-to-shoot-up-32678-3-1.html

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

One Response to Did the Gold Market Whiff on the Chinese Rate Hike?

  1. Pingback: Silver Closes Below 50 MA On Chinese Reserve Ratio Hike « Aaron Basile

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