Silver Leaps, Gold Gains as China 'Buys Bullion as Hard Currency'

SILVER LEAPT to 9-week highs and gold prices also fell and then jumped on Monday as the latest failure in US-Iran peace talks drove crude oil higher while new data from China showed a surge in households choosing to invest in gold.

Households in No.2 gold consumer India, in contrast, were urged by Prime Minister Narendra Modi at the weekend to skip buying gold for 12 months as well as curtailing travel to try reducing the sub-continent's fuel import bill.

"TOTALLY UNACCEPTABLE!" tweeted US President Trump about Tehran's demand for an immediate end to Washington's naval blockade of the Strait of Hormuz, plus assurances of no further US air strikes.

Spot gold prices fell as much as 1.4% to $4648 per troy ounce in early trading, reversing half of last week's gain, before leaping to $4738.

Silver meantime exploded 6.8% in Dollar terms to peak near $86 per troy ounce for the first time in 2 months.

"The market increasingly views gold not just as a luxury good, but as a hard currency against uncertainty," says analyst Zhou Yinghao at the Bank of Urumqi in China's north-western gold-mining region of Xinjiang of Saturday's data from the government-mandated China Gold Association, showing how investment demand ran well above twice the weight of jewellery purchases in January to March.

That extends China's shift away from adornment towards gold investment starting in 2024 and accelerating as prices surged last year.

Part of a global collapse in adornment versus gold investment demand, first-quarter gold coin and retail bar demand in China was 106.0% higher than the past three-year average, BullionVault analysis of the CGA data says, while jewellery demand fell 36.6%. 

The Association's latest data also show robust inflows into gold exchange-traded funds, with holdings to back Chinese-listed gold ETFs increasing by 50 tonnes during the first quarter, up 114.9% year-on-year and lifting the country's total gold-backed ETF holdings to 298 tonnes by the end of March.

That trend continued in April, with China-listed gold ETFs expanding to need another 3.1 tonnes and leading the Asian region, where year-to-date inflows are now on pace to challenge last year's record inflows according to the mining industry's World Gold Council.

China's central bank also continues to grow its gold bullion holdings, with the People's Bank of China buying gold for the 18th consecutive month in April, adding a further 8 tonnes to bring total reserves to 2,322 tonnes.

"Safe-haven demand and wealth preservation motives amid geopolitical tensions and market volatility are driving the surge in Chinese investment demand," Zhou adds, speaking to Global Times.

US President Trump will this week visit China to meet Xi Jinping and discuss the 'trade war' tensions between the world's 2 largest economies, plus the Middle East situation.

Iran's Foreign Minister Abbas Araghchi visited Beijing last week as the Strait of Hormuz stayed shut to all traffic, including oil tankers heading east towards Asia.

"I would expect the President to apply pressure," a US official told reporters at the weekend after the State Department imposed sanctions on three Chinese companies for providing satellite imagery to the Iranian Islamic regime and on another business for helping Iran buy air-defence systems (MANPADS) from China.

"Patriotism is not only about the willingness to sacrifice one's life on the border...We have to save foreign exchange by any means," said India's Prime Minister at an event Sunday in Hyderabad.

"In 12 years, he's brought the country to such a pass that the public now has to be told what to buy, what not to buy, where to go, where not to go," says Rahul Gandhi of the opposition Congress Party, which repeatedly raised gold import duty ahead of losing control of the Lok Sabha, a policy widely seen as boosting gold smuggling.

Gold prices in No.1 consumer nation China had earlier closed Monday down 1.0% in Yuan terms, extending the Shanghai Gold Exchange's premium over London quotes towards 2-month highs at $25 per troy ounce, indicating strong demand as the incentive for new imports grows.

After receiving strong support from senior figures in India jewellery body the IBJA ahead of his first victory as Prime Minister in 2014, Modi's BJP Government repeatedly disappointed the massive Indian jewellery industry up until the shock 2024 cut to India's bullion import duty since followed in recent weeks by customs and other government officials delaying new import licenses and inflows.