China Climbs on the Stimulus Bandwagon and drives Gold Up

By FX Empire Analyst - Barry Norman
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This morning, all the Asian markets are trading in the green with Hang Seng trading higher by 0.7% while Nikkei and Kospi are up 0.6% each. Shanghai and Taiwan are up by 0.5% and 0.4% respectively. Strait Times is up by 0.3%.

U.S. stocks have been stuck in a rut this week, as investors look for clues about where the global economy is headed. Thursday wasn't any different, as the major indexes finished the day little changed. The Dow Jones rose slightly, while S&P 500 and NASDAQ finished just below the breakeven line.

An HSBC report showed that manufacturing in China continued to contract in September for the eleventh straight month. That's worrisome for U.S. investors, since China is the world's second-largest economy and many U.S. companies have a significant presence in the country.

Investors are still waiting to see if stimulus measures from central banks across the globe will jumpstart the global economy.

European markets came under pressure after a regional purchasing managers index fell to a 39-month low. Economists had expected the index to show a slight uptick in business activity. DAX of Germany dropped by 0.02% and CAC 40 of France finished lower by 0.6%. The FTSE 100 of the U.K. fell by 0.6%.

China’s stocks slumped, dragging down the benchmark index to the lowest level since February 2009, after a report on manufacturing signaled a contraction and escalating tensions with Japan threatened trade. Japan shares fell the most in three weeks as the yen rose and the nation’s exports declined for a third month, adding to signs of global slowdown. Stocks extended losses on China manufacturing data pointing to a contraction

The US Dollar rose against the Euro on Thursday after weak data from the United States, Europe and China stoked global growth worries, driving investors to perceived safe-haven assets. The euro slid to a one-week low against the dollar even as Spain successfully sold 4.8 billion euros ($6.27 billion) of debt.

Precious metals prices ended nearly flat as the market paused after its recent sharp rally, while a key technical-chart formation suggests momentum is turning increasing bullish. Gold is trading at 1770.85

Gold rose by 0.14% triggered by the announcement of an open-ended bond purchase program, or quantitative easing (QE3), in addition to guiding for zero interest rates until mid-2015. The European Central Bank had already announced unlimited bond-buying, while Bank of Japan this week pledged to increase its asset purchase program by a further $127-billion. Silver too increase by 0.47%.

This morning the PBoC moved to inject liquidity into its local markets, conducting 101 billion yuan ($A15.3 billion) worth of open market operations in its banking system, Reuters News reports. According to the news agency, the injection is the first in three weeks and adds to the 966 billion yuan already added to the financial system so far this year. The moves have fuelled uncertainty over the extent Beijing is willing to boost the weakening Chinese economy.  

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange traded fund, stood at 1308.41 tonnes by Sep 20, up by 3.01 tonnes from the previous business day. Holdings in the world's largest silver backed exchange-traded fund iShares Silver Trust stood at 9940.66 tonnes by Sep 20, up by 57.26 tonnes from the previous business day. Centerra Gold reports the resumption of milling activities at its kumtor mine site following planned shutdown. It expects to produce between 260,000-270,000 ounces of gold in fourth quarter of 2012 from mill at the kumtor mine.

Russia's central bank decreased its gold reserves by 0.1 million troy ounces in August, taking its total holdings to 30.0 million ounces, the bank said on its website on Thursday.


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