The Daily Market Report: Gold Jumps By More Than 1% Ahead of Holiday Weekend

USAGOLD/Peter Grant/05-26-17

Gold surged to pressure the four-week high 1270.38, buoyed by ongoing political and geopolitical concerns. These gains further improve the near-term technical picture and may be prompting short covering ahead of the long holiday weekend.

Geopolitical tensions ratcheted higher after President Trump pledged to solve the “Big problem” that is North Korea. NBC news is reporting that Jared Kushner, the president’s son-in-law and a senior advisers, has “come under FBI scrutiny in the Russia investigation.” With the FBI now probing the President’s inner-circle, the political uncertainty is on the rise as well.

The China Gold Association recently reported a 9.3% decline in Q1 gold production to 101.197 mt, versus 111.563 in the previous year. China is of course both the world’s largest producer and consumer of gold.

The production decline was attributed to China’s plan to consolidate and modernize its mining industry. China’s Ministry of Industry and Information Technology says they plan to shutter 150 mines by 2020, which would equate withe a reduction in capacity of about 40 mt.

However, China’s official news agency Xinhua contends that annual gold output will rise to 500 tonnes over that same period. Presumably as assets are shifted from lower producing and higher cost mining operations, new efficiencies will be achieved.

In the interim it appears that China is prepared to bridge the gap by increasing imports. Gold imports surged 64.5% to 10.467 mt in Q1, almost exactly matching the annualized drop in mining output.

Chinese gold demand was robust in Q1 at 304.14 mt, a 14.7% increase over Q1-16. If demand remains strong, but domestic production continues to be suppressed, the Chinese will have to increasingly turn to global markets for supply. That dynamic would likely have a positive impact on the price of gold.

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