Gold Futures Surge on Weak Dollar

Gold Futures, dollar and China demand

Gold future rose by 0.5 percent or $6.10 by the end of trading in New York to finish the session at $1,111.50 an ounce for June delivery.

Along with the weakness of the U.S. dollar, Chinese demand for gold is expected to increase by double over the next decade also helped push the price of gold futures up. Chinese gold demand news was from a report from The World Gold Council, which based their demand assertions on an increased interest in jewelry and of course investment demand for gold.

In 2009 gold demand in China grew to 424 metric tons, with their domestic gold production providing only 314 metric tons of that. With demand growing as it is, they'll continually have to go outside their country for supply, and that should help push gold prices up, even with the usual safe haven and inflation factors not being considered.

Just these factors in China alone provide a solid support for gold prices, and that doesn't include growing interest from institutional investors and those wanting to protect the value of their assets.

Gold futures and China

China Giving Gold Prices Support

China and Gold Price Support

Even though there has been a pull back in gold prices lately, leading the usual clueless commentators to question gold prices going forward, China remains a solid customer of gold, and recent changes in their laws had freed up its citizens to acquire more jewelry and hold a bunch of physical gold.

Of course this is small potatoes compared to the inflation and safety factor being priced into investing in gold, and that isn't going to change for a long time to come.

But adding the physical gold freedom in China and you have even more reason for gold to continue to rise for years to come.

China and Gold Price Support

China Tightening Weighing on Gold

China and Gold

There is a lot of speculation swirling around out there which could have a strong impact on gold if any of them turn out to be true, with one of those being China could end up tightening its money supply to cool down its economy.

With China it is believed they may raise their interest rates, which could result in not only a downward pressure on Gold prices, but possibly on other commodities as well, if demand slows as a consequence of those actions; if they're what really happens.

But with all the other positive factors for gold to remain in demand, such as inflation and currency weaknesses, gold should continue to find support at around $1,000, or maybe even more, and will be considered a buying opportunity by investors when and if it falls to lower levels.

There are too many variables to make an interest rate hike by China a major game breaker for gold, but it would have a temporary downward pressure on gold, and as mentioned, would present a buying opportunity at that time.

China may attempt to cool off its economy some, but it's not going to do cool it off too much. So including that with other factors, and gold prices should hold strong for some time to come, and eventually will resume their upward climb.

China and Gold

Chinese Commercial Banks now Allowed to Trade Gold Futures

While the Shanghai Futures Exchange (SFE) had been allowed to trade gold futures as of January, the same wasn't true for commercial banks in China, which had been barred from doing so.

That has changed now, as the China Banking Regulatory Commission (CBRC) announced commercial banks will now be allowed to sell gold futures under specific guidelines, within their domestic market.

One of the key requirements commercial banks in China must adhere to, is they must have a "capital adequacy ratio of more than 8 percent" in order to even apply for a trading permit. They also must have the necessary qualifications to trade in derivative markets to enter the field.

According to the CBRC, the reasonse for the qualifications is to protect Chinese banks, who have no experience in trading futures.