The gold price has regained ground in Asian trading today on the back of renewed weakness in the US dollar, but poor equity market performance continues to hinder price appreciation in precious metals.
The Comex May gold contract settled at $1,479.80 yesterday, down $10.60 (0.7%). Aside from increasing investor trepidation about the state of the world economy, the news from late Monday that Soros Fund Management – the hedge fund owned by George Soros – has sold 99% of its stake in the SPDR Gold Trust ETF also hurt gold.
Soros – whose big bets against the British pound on “Black Wednesday” in September 1992 earned him $1 billion – remains a cult figure in the world of international finance, and his asset moves have the capability to influence markets. However, other big institutional investors (notably John Paulson, known for his big bets against subprime mortgages) remain bullish on the yellow metal and heavily invested in the exchange-traded fund GLD and other gold-related assets.
Other recent news is more bullish long-term for gold, such as the news that China’s holdings of US Treasuries fell by another $9.20 billion in March – the fifth straight month of reductions in this asset class. Though China’s monetary authorities are still sitting on $1.145 trillion of US government debt, these steady but slow reductions are obvious proof that the Chinese are looking to diversify out of the dollar, and reduce their subsidy of American consumption.
Today has also seen the opening of the Hong Kong Mercantile Exchange, where trading has taken place in Asia’s first precious metal futures contract – 32-troy-ounce gold futures. This exchange plans to offer yuan-denominated precious metal contracts by the end of the year, in yet another sign of the growing importance of East Asian demand in influencing gold prices. Investors all over the world will be watching with interest to see how this market develops, and whether or not it can establish itself as a legitimate rival to the New York Comex futures market.
