Market Update February 6 – Chinese Market Crash Causes Concern

There are several developing stories this week that are impacting precious metal prices:

Let’s begin with China. The CSI300, an index that replicates the performance of the top 300 stocks traded on the Shanghai Stock Exchange, is down 20% year-over-year, and its performance is causing great concern among both Chinese and overseas investors. Aside from already wiping out over $2 trillion in value for investors thus far, it is putting macro pressure on industrial metals such as silver, platinum, and palladium.

On the flip side of the coin, a risky Chinese economy has been a major driver for gold. Stock market volatility, capital controls, and concerns about the real estate market were significant factors driving strong demand for gold in 2023 and early 2024. Chinese demand for gold bullion rose 30% YoY in 2023, which is one reason that gold remains firmly over $2000/oz today.

Tensions in the Middle East continue to rise as the US and the UK assaulted targets in Iraq and Syria over the weekend in retaliation for a drone strike that killed 3 US servicemen last week. A second drone attack on a US military base in Syria killed six allied fighters over the weekend as well. The ongoing geopolitical risk in the Middle East supports higher gold prices.

The US Dollar continues to strengthen, with the DXY reaching 104.50 this morning, its highest level since December. A strong US dollar has a direct (negative) impact on the price of gold, and if the FED keeps interest rates unchanged, gold may struggle to break out from its current range of $2000-$2050/oz. Following FED Chairman Powell’s most recent statements, only 20% of the market anticipates an interest rate cut in March, with the majority now eyeing May for this year’s first cut.

With the Chinese New Year approaching (February 10th), gold investors can expect some positive price action based on historical trends. Since 2007, gold has increased 3.1% in the 30 days following the Chinese New Year, as the yellow metal is heavily gifted amongst the Chinese during that time of year. See the chart below (Source: Bloomberg, MKS PAMP Group).

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Mark Yaxley, CEO of Strategic Wealth Preservation (SWP), began his journey in precious metals with Kitco Metals in 2006. Co-founding SWP in 2014, he now guides individual and commercial clients towards their investment goals. Renowned for his 'Inside the Vault' YouTube series, Mark has helped millions gain insights into gold and silver bullion ownership.