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Gold Sees a Pullback, Correlated with Chinese Policy

by on February 12, 2014 7:02 am GMT
 

Gold futures retreat after hitting $1,294.4 per ounce during the testimony of the newly appointed Federal Reserve chairwomen Janet Yellen. However, Yellen’s acknowledgement of following the continued path of tapering the monthly asset purchases did little to weaken precious metals.

Gold has seen a 6.8 percent rise this year on a physical demand boost throughout Asia and as a safe-haven during geo-political risks in emerging markets. The higher spot prices is causing price sensitive buyers to pull away as volumes for the Shanghai’s benchmark spot contract fell from a nine-month high. “Physical buyers are very sensitive to price changes so it’s no surprise if demand slows,” said Lv Jie, an analyst for Cinda Futures Co.

There has been an interesting correlation of gold prices and Chinese policy uncertainty made by Societe Generale. According to the chart, depicting gold prices and the uncertainty index, the rise in gold prices could be factored into recent worries about Chinese reform and economic uncertainty.

20140211_gold_0

 

Societe Generale’s chart is based on an index from policyuncertainty.com, which is based on a scaled frequency of articles that relate to policy and economic uncertainty published in the South China Morning Post. The bank makes not that this is not a forecasting tool leading to future prices, but it gives insight to potential gold price reactions to uncertainty, considering that China is the largest producer and consumer of gold.