China and Russia suffer huge losses thanks to a bearish gold market

An article by Brisbane Gold Buyers


The fall of the gold price caused huge losses for China and Russia. Losses calculated are around the USD 5.4 billion (AUD 7.4 billion approximately). As the biggest gold buyers in the past six years, the consistent drop in gold value has caused huge losses for eastern superpowers.


For the Chinese gold industry, last reports showed 228,735 metric tonnes of production in the first half of 2015. That represents a hike of 8,37 per cent from the same period of time back in 2014. Meanwhile, the gold consumption drop to 561.35 metric tonnes in the first semester of the year, represents 1.42 per cent in comparison with the first semester past year. All this data is according to the China Gold Association and the Official China News Service.


The several financial crisis around the world (mainly the Greek/Euro crisis and the Chine stock market crash) hasn’t boosted gold demand as expected for precious metals during turbulent times, normally any trouble in the international economy spells a good gain for gold. Unfortunately, the global circumstances didn’t help at all to increase demand of the well-known safe haven, many commented the days of save haven precious metals may be over.

Chinese gold ingot mean symbols of wealth and prosperity
So, those holding gold reserves keep losing huge amounts of capital. Mr. Edward Dempsey, chief investment officer at Pension Partners in New York said that “holders of gold should be very concerned about the dislocation of gold’s status as a safe haven investment, (…) the strength in the dollar continues to weigh on gold.”


If the common pattern seen in the past repeated during the course of the actual crisis, most investors would bet in gold’s favour. The situation is different now. It’s a fact: gold is losing, slowing, its status as a safe haven. This is because it is facing rivals like a growing United States Dollar that offers an attractive interest rate in return. Gold doesn’t give you anything back if you want to look it that way.


“In the medium term, with rising bond yields, emerging markets currencies collapsing, no safe haven demand and with the dollar potentially going higher on US rate expectations, there is no gold-friendly news out there” said Mr. Ole Hansen, senior manager at Saxo Bank. Every factor involved is actually against the gold price rise.


China and PBOC’s declaration on their gold reserves suppresses even more the gold prices back in those days. Good and positive news on gold is needed to take prices up and mend some of the billionaire losses for Russia and China.


In that way, gold’s 60-day historical volatility was close to 11,8 on Thursday, making a record low since last October. Statistics keep pessimistic and investors receive that feeling too. But, rarely China put a step back when it’s about plans and strategies. If their planned path was to be the biggest global gold buyers, they are certainly on that track now.


China’s gold demand slowed down, but it is suspected this is because of financial hardships in the last few years. The PBOC still have the same intentions. They want to diversify their reserves because they do not trust the US Dollar, and their plans of joining in the IMF’s elite club are still alive. The serious market crash only represented a temporal back down. When China resumes its gold demand, it is almost certain that the prices will rise in the course of several months.


Traders must see viable data, not pessimistic forecasting. They must remember the volatility of a currency, which is fully dependent of a central bank. Gold is being ignored in favour of a fiat currency is an interesting turn. But, precious metals will still always be the safe option for turbulent times. That’s a fact.

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