Goode take on China gold price control

Goode take on China gold price control

By Lawrence Williams

Just a brief follow up to my article on China being the ultimate controller of the gold price – Path of the gold price is in China’s hands – in that we received a very interesting and thought provoking comment from Keith Goode from Australia who attended the China Gold Conference held in Beijing in September.

Keith noted as follows: “I agree on China controlling the gold price or Shanghai preventing Comex from selling it down. China commented at their Gold Conference in September 2014 that the $200/oz fall in the gold price in April 2013 was a one-in-2 million year event, and that it partly happened because Shanghai (SFE) could not then trade 24-hours per day – now it can. Also that at the price in September 2014 at ~$1200/oz about one-third of China’s mines were insolvent. So no I don’t see $1000.”

Keith was a highly rated and experienced mining and gold analyst with a career spanning 18 years with South African and Australian banks and brokerages before starting up his own research company, Sydney area based Eagle Research Advisory (ERA), in 2001. ERA specialises in undertaking commissioned research on mainly Australian mining companies. He has a particular interest in precious metals and also in China and makes a point of visiting that country every year so has great experience in understanding how the country operates and its policies with respect to precious metals and mining.

What Keith’s comment suggests is that China is very aware of the pressures that can be brought to bear on the gold price through heavy selling of gold futures on COMEX and thus looks to use gold futures trading on the now-24 hour Shanghai Futures Exchange to counter such take-downs emanating from the U.S. exchange.

Indeed we may well have seen exactly this happening recently – and perhaps as recently as yesterday – with sudden bursts of selling pressure on gold, via the U.S. gold futures market, driving the price downwards, invariably followed by a strongish pick-up taking the price back up to around near where it started from.

From this it seems that China may well be, for the moment, using the SFE to prevent the gold price falling below a trading range with which it is comfortable, but not rocking the boat to drive it significantly higher either allowing normal trade on COMEX to set the base price. But this is not to say that should it feel it expedient to drive the price upwards to support its own gold miners, or to cause financial consternation in the West, it could almost certainly do so through its own futures exchange. Food for thought for gold bulls and bears alike!