SHANGHAI (Interfax-China) -- Shanghai gold futures edged up today after their downward movement last week, encouraged by new record high prices on the international gold market, gold analysts told Interfax today.
The gold contract for delivery in June 2008, the most active contract on the Shanghai Futures Exchange (SHFE), climbed to an intra-day high of RMB 220.25 ($30.34) per gram today and closed at RMB 220.10 ($30.32), up 1.06% from last Friday.
"The jump in Shanghai gold futures is mainly attributable to the strong performance of both overseas gold markets and the Shanghai Gold Exchange," Gao Yansong, an analyst from Beijing-based futures brokerage, CIFCO, told Interfax today.
The gold contract for delivery in February rose to a record high of $900.10 per ounce and ended trading at $897.70 per ounce on the New York Mercantile Exchange last Friday, up $4.10, or 0.5%, from the previous trading day, influenced by market concern over a possible U.S. interest rate cut designed to ease the value of the U.S. dollar.
Gold Au 99.99 closed at RMB 211.20 ($29.09) on the Shanghai Gold Exchange (SGE) today, up 1.34% from the previous trading day. The SGE is the sole spot gold exchange in China.
"Heavy selling from bears pulled down gold futures prices in Shanghai last week, shrinking the premium of Shanghai futures over international market prices. However, the current fundamentals still favour an upside trend," Gao added.
Shanghai gold futures contracts debuted on 9 January, with most contracts jumping by their daily limit on the first day of trade, but slumping to a low of RMB 213.70 ($29.44) per gram over the following two trading days.
"Gold is viewed as a safe haven asset against U.S. dollar depreciation and could see a long-term upward movement this year due to concerns over a global economic recession," Gao said.
Banks to Join in SHFE Gold Trade
The SHFE announced last Friday that three state-owned commercial banks were in the process of applying for SHFE membership, including the Industrial Commercial Bank of China (ICBC), the Bank of Communication and China Construction Bank (CCB), which are already licensed as warehouses for gold trade deliveries.
Chen Yiqun, an analyst from Suzhou Investment Co. Ltd, a futures brokerage in Suzhou City, Jiangsu Province, told Interfax today that commercial banks could hedge in the futures market against risk in the gold spot market.
The three banks are currently members of the SGE, and as such are licensed to carry out spot gold trading and provide spot gold trade services for individual investors.
"Banks are the major force behind the international gold futures market, and if domestic banks join in with gold futures trading, it could help them to get more involved in the global gold market," he said.
Only SHFE members, including futures brokerages and gold companies, are currently licensed to trade gold contracts.
Commentary
On 12 October 2007, we published the following commentary: "Gold futures trading in China is bound to attract heavy turnover and will provide a major boost in turnover for the SHFE. No doubt welcomed by the mining and jewellery businesses in China, it will also provide another vehicle to the investment community. Individual investors/speculators will relish this new opportunity and are likely to create significant impact on international gold prices. It is probable that this impact will be to the long rather than short positioning."
The price then was $760 and $881 on the day of the launch. Whilst a lot of the record breaking gold runs can be attributed to dollar weakness, we believe that underlying demand in China and India is also a major contributing factor, which has not been fully appreciated by investors. We therefore see this as something more than a dollar play/inflationary hedge and would expect further record gold levels.
(c) Interfax-China 2007. Commentary provided by Interfax analyst David Harman. For further information regarding Interfax China Commodities Daily Reports, contact David Harman at david.harman@interfax-news.com or (852) 2537-2262.
