Gold's Rise Constrained with China on Vacation

by Pimm Fox

October 2, 2019

(Bloomberg) Stocks are down along with bond yields, and gold is up as much as 1.3% at $1,501 an ounce but is struggling to retest its recent high of $1,554 on Sept. 4. What's with the muted response to the current risk-off mood? It might have something to do with China, which is closed for the regime's 70th anniversary celebration.

"Every year, without exception, gold falls when China is closed," says Robert Mish of Mish International Monetary, a dealer in precious metal bullion and coins, based in Menlo Park, CA. In the past six years, gold prices have dropped during "Golden Week" -- the seven- or eight-day national holiday -- only to rally afterwards. The Shanghai Exchange reopens Oct. 9. "If gold can rally and hold even while the Chinese exchanges are closed, then we have an internationally driven gold market that does not need Chinese buying to support it," Mish said.

Beijing is on lock-down with all objects that can fly over the capital banned -- including pigeons. Shops and restaurants in the city center are either closed or have reduced hours of operations. Subway stations have been temporarily closed. Coal- fired power plants have been shut to reduce air pollution.

Of course, an alternative explanation is that the market was too oversold heading into Golden Week, so the rally we're seeing is simply technical. Or maybe traders were front-running Golden Week, and it took just two or three trading days to shake out weak longs or trap new shorts, Mish added.

To contact the reporter on this story: Pimm Fox in New York at pfox11@bloomberg.net