Thursday, June 19, 2014

Gold news of the morning June 19 , 2014 ----- Who Just Bought Half A Billion Dollars Of Gold Futures ? Is the answer China or Chinese interests ? China’s Largest Gold Company Seeks To Become Kingmaker In Gold Market .........

Zero Hedge.....

Gold Hits $1300, Silver Surges To 3-Month Highs As China Rehypothecation Ponzi Unwinds

Tyler Durden's picture

But, but, but... Janet Yellen didn't say precious metal valuations were within historical norms? Gold and Silver are surging today (and have done since the FOMC press conference all-clear) with the latter having its best day in months and back at 3-month highs... Intriguingly, just as we warnedgold and silver have been on a significant tear since the Qingdao CCFD probe began (as synthetic hedges are unwound - which dominate pricing in PMs) while copper and iron ore and so on have all fallen (as the reality of no real demand leaks into these commodities).

Is the CCFD unwind having its impact?

As we commented previously:
When we previously contemplated what the end of funding deals (which the PBOC and the China Politburo seems rather set on) may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. And yet in the case of gold, it just may be that even if China were to dump its physical to some willing 3rd party buyer, its inevitable cover of futures "hedges", i.e. buying gold in the paper market, may not only offset the physical selling, but send the price of gold back to levels seen at the end of 2012 when gold CCFDs really took off in earnest.

In other words, from a purely mechanistical standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold (and silver) investors have been waiting for.  This of course, excludes the impact of what the bursting of the Chinese credit bubble would do to faith in the globalized, debt-driven status quo. Add that into the picture, and into the future demand for gold, and suddenly things get really exciting.
Here's our previous epxlanation of gold's move... if we are right that somehow China managed to push gold lower via gold CFDsthen the unwind pushes gold higher:

Here's how that might work:
In the gold markets, the paper or synthetic 'demand/supply' dominates pricing as opposed to the non-precious metals which have at least a grain of fundamental sense to them still

Throughout 2012/2013 - as the gold CFDs were booming,Chinese demand for physical gold was soaring as the price plunged (due to the forward hedging required in the CFD transactions which pressured gold swaps/futures lower and thus dominated pricing)

As CFD unwinds hit en masse, these flows must unwind (cover hedges and ensure the underlying physical is there... and if not buy it)

This will pressure gold futures prices higher and because unlike in non-precious commodities where spot markets wag the tail of the futures markets - spot gold will likely be dragged higher also (as we know the demand for the physical has been high).
So unlike in the industrial commodities - where the CCFD unwind drives prices down as the image above shows, thanks to synthetic manipulation and domination of the paper gold (and silver) market, the opposite occurs in PMs.

Who Just Bought Half A Billion Dollars Of Gold Futures?

Tyler Durden's picture

Presented with little comment aside to note the surge in gold since Yellen gave markets the all-clear yesterday. It seems someone decided the open this morning was an opportune time to take on half a billion dollars of gold exposure...

Gold Core.....

China’s Largest Gold Company Seeks To Become Kingmaker In Gold Market

GoldCore's picture

Gold added to overnight gains this morning as the dollar weakened after the U.S. Federal Reserve confirmed ultra loose monetary policies are set to continue despite inflation pressures building. Platinum and palladium rose as new hurdles emerged in settling South Africa's industrial unrest and doubts remain about the viability of Russian supplies.

Oil prices remain near multi month highs on concerns of supply disruption. U.S. inflation figures were worse than expected Wednesday showing that inflation pressures are building which is bullish for gold. Higher oil prices and slowing economic growth is a recipe of stagflation - economic conditions that gold thrives on.

Gold in U.S. Dollars - 5 Days (Thomson Reuters)

In China, the world’s largest physical gold buyer, gold prices were trading either at a discount of about $1 an ounce or on par with the global benchmark, in a sign that buying interest has waned somewhat.

China’s Largest Gold Company Seeks To Become Kingmaker In Gold Industry
China National Gold Group Corporation or China Gold, China’s largest gold conglomerate with primary interests in mining and also refining, is on the hunt for global acquisitions and partnerships, the company's president said yesterday.

The state owned Chinese gold miner and producer and retailer of custom-designed gold and silver bars, which was founded in 2003, appears to have designs on becoming a kingmaker in the global gold industry.

China is the world's biggest producer, importer and buyer of gold, giving the country increasing sway over prices, output and the global gold market in general. The country's official gold consumption increased to 1,176 metric tons last year while its production was 428 metric tons. This is encouraging overseas acquisitions.

China Gold’s President Dr. Xin Song said he believes that long term demand for gold in China will remain strong as a younger generation buys gold online, even if demand falls slightly this quarter from the first.

Acquisitions by China Gold would revive a mostly moribund market for gold mergers and acquisitions. This has been seen in both the mining and investment segments of the gold market. Indeed, the German refinery and bullion wholesaler Degussa’s acquisition of small UK bullion retailer, Sharps Pixley, in November 2013 was one of the only deals seen in the investment sector in recent years.
Mr. Song said that his company is searching for opportunities in the gold and silver markets. "The growing strategy is very clear: We are going out looking at things globally," he said through an interpreter. "We have a few opportunities, at different stages."

He said the company's current preference is for assets in countries near China, such as Mongolia, Russia and in Central Asia. It also is looking for acquisitions in developed countries such as Canada, Australia and the U.S.

A third option is in developing countries, including in Africa and South America. "The political situation has to be stable," he said.

Mr. Song said he talked last week with Barrick Gold Chairman John Thornton. Barrick is the world’s largest gold producer. Barrick has placed a priority on establishing long-term relationships with Chinese partners. "Both parties are looking for potential opportunities jointly," Mr. Song said.

China Gold is working on potential partnerships with both Barrick Gold Corp., Newmont Mining Corp. and Kinross Gold Corp its president said on Tuesday.

If China’s largest gold producing company is successful, the alliance would bring one or both of the world’s largest western gold mining companies closer to China. It could mean an important new source of supply for the insatiable demand that is coming from China.

Zhongyuan Gold Smelter Co Ltd, is the largest gold refiner and bar refinery in China and part of China National Gold Group Corporation (CNGGC), is a subsidiary of China Gold Co Ltd (Zhongjin Gold Co Ltd), which is headquartered in Beijing.

The refinery works closely with an associated company, China National Gold Group Gold Jewellery Co Ltd, which is also headquartered in Beijing and responsible for the design and sale of CNGGC-branded gold investment bars and other bars and products for the retail gold market in China.

Gold Kilo Bar

Sanmenxia City, which is built on the west bank of the Yellow River, is known as “Gold City”, in recognition of the importance of the city and Henan Province to China’s gold industry.

For 53 years the Chinese people were banned from owning gold. But that all changed in 2003, and now the enormous demand by 1.3 billion Chinese over the last ten years is causing an important paradigm shift, as gold and silver moves from the West to the East.

Another factor in the paradigm shift is official Chinese demand from the People’s Bank of China (PBOC) who are diversifying some of their massive foreign exchange reserves, some $3 trillion, into the much smaller physical gold market.

The ramifications of that paradigm shift have yet to be appreciated.