Will Plummeting Precious Metals Cause Miners to Fall?

The wholesale gold demand in China is up for the year 2015, breaching the records from the past year. The stock market’s downturn since June, not to mention the rising concerns over the economic performance of China, likely pulled up the demand for precious metal investing in the country. According to data released by the SGE (Shanghai Gold Exchange), almost 2,119 tons of gold have already been withdrawn from the exchange on a YTD (or year-to-date) basis. It seems that the figures will reach a 2,500 tons mark by the end of this year, breaking the record of 2013 at 2,197 tons.

The drastic fall seen in gold prices from 2013 to date is likely the primary reason for the surge in gold demand. Gold has lost almost 6.7% on a year-to-date basis. However, silver has performed comparatively better than gold, though silver still lost 4.70% on the same basis. What the industry experts and analyst are closely watching is whether the rising demands in China could provide some support to falling precious metal prices.

The data recently released from the Swiss Customs department show that Switzerland exported 21.7 tons of gold to China in September. The numbers are up almost 28 % on a monthly basis. That is also the largest amount of gold export to China from Switzerland in about six months. Most notably, since 2013, gold supply in China has been thousands of tons more than what consultancy firms like the World Gold Council and GFMS (Gold Fields Minerals Services) disclose as Chinese gold demand. The Russian mining giant Polyus Gold also confirmed that it will be closely working with one of the Chinese mining giants for further resource exploration. All such news about gold and China tell us how closely they are linked, and that the change in demand patterns from China can have a potential impact on the price of precious metals.

ETFs that have witnessed a severe downfall in their prices along with gold in the past year include SPDR S&P Metals and Mining ETF (XME) and Direxion Daily Gold Miners Bull 3X ETF (NUGT). The mining companies that followed the league and saw their share price plummet include Franco-Nevada (FNV), Aurico Gold (AUQ), Gold Fields (GFI). These three companies make up 9.6% of the Market Vectors Gold Miners ETF (GDX).

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Browse this series on Market Realist:

• Part 2 - Could Buying from the East Buoy Precious Metals?
• Part 3 - Miners May Merge to Fight Downfall in Precious Metals