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Rise in Gold prices after drop in equities in China

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After noticing a low for about five years, gold prices rose by $10.90 or 1% upward. This is because the equities in China saw a sharp drop on Monday.

The drop seems to encourage a few investors in buying the yellow metal as a hedge. The keenly traded gold futures contract rose from the five year low of $1,085.50 an ounce of Friday at the Comex division from the renowned New York Mercantile Exchange.

As of now gold prices have been falling for numerous weeks as most investors were expecting that the Federal Reserve will at some point raise the interest rates. In order to boost growth, the US central bank has set aside the rates near zero from the time of the financial crisis that hit in 2008.

This technique has helped gold as the yellow metal costs money and does not pay interest which is makes it competitive to assets that are yield bearing such as stocks and bonds. Many investors were selling gold at the same time channeling money to other assets as Fed officials seems to be raising the borrowing costs. However rise in price of gold on Monday seems to reverse this trend and have compelled Chinese investors to seek for security.

On Monday since 2007, the Shanghai Composite Index experienced an 8.5% fall which is the most terrible daily percentage. It started to worry everyone around that the authorities want to support the share market by cutting on measures like funneling money towards equities to balance the downdrafts.

Ira Epstein said that it is scary stuff as know one knows how serious is the situation in China regarding gold as the increase was meager compared to the lows it has seen in the recent weeks. Most investors have believed that gold will keep its value stable in a political or economic upheaval and therefore bought gold as a security. These options have brought buyers to the market. The Feds have to settle the Greek matter first and definitely not wait for the Chinese market to see such a setback.


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