Latest Goldman Sachs’ Words on Gold and China
The gold bullish market is not over yet. After a highly favorable report released by the Chicago Federal Reserve on Monday, regarding the good progress of U.S. economy and domestic commerce, investors ran behind the Dollar.
Many of them are quite convinced that the FED is going to increase interest rates anytime soon. In order to heat up the situation, the president of the New York FED also talked about the situation, telling the press that the end of this same year would be an ideal moment to make the increase.
And, as usual, when the U.S. Dollar goes up, the gold goes down. Despite this unfortunate event for the precious metal, the Chinese panorama could have the opposite effect. According to a report released by Goldman Sachs Group Inc., a huge demand growth may come from Chinese investors.
The Reasons
Right now, both Yuan and the property market in China are fragile and keep losing value quickly. Constant depreciation policies being executed by the central government are stressing investors, who don’t want to maintain losing their money this way. While the U.S. Dollar or the Euro are both good ways, seems like they have more faith in what gold can do.
According to this analysis, where Jeffrey Currie and Max Layton are involved, bullion demand could increase potentially in the short-term, stimulated by this same fear.
The central government in China could continue with the depreciation process of its currency in order to boost exportations. A weak economy is causing this financial mayhem that began last year. After several depreciations, local investors may be looking for safer alternatives.
Indicators suggest that the Yuan weakness is directly correlated with the gold bullion demand in the Asian country. Now, with an unattractive property market, the demand would continue to growth potentially.
Opportunities in the Market
According to Goldman analysts in this same report, if the gold falls below the $1,250 mark, it should be considered as a huge opportunity to do business. This is something many Chinese investors may be seeing already, because the demand has grown effectively.
Switzerland’s gold shipments increased from 19.9 tons in August to 35.5 tons in September. This information was provided by the Swiss Federal Customs Administration and clearly suggests that the mindset shift was made weeks ago.
The Bottom Line
In order to stimulate the stagnant economy, China has depreciated its own currency a couple times in the last 12 months. While this seems like the only way to boost exportations after a collapse in their system, investors aren’t happy.
Now, a fragile property market has joined the party, leaving investors with zero interest in keeping their money in Chinese territory. This way, the precious metal may be seeing a new window to keep growing after one of its best years in decades.
In this country, FED’s report regarding the U.S. economy could be quite irrelevant. So far, they are seeing gold as a safer bet to protect their fortunes, which is wiser if we consider everything that’s going on, including the upcoming elections.
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