Gold News

Gold - India sees bargain hunting but Western funds sell

Gold rose in Asia today, picking up where New York left off to put gold 0.9% higher at this morning's London open from Monday's close.

Slower action in the currency markets allowed gold to rise for Euro and Sterling investors, too. But a rally in Asian equities – especially in Tokyo – could put gold under pressure according to a report from Reuters.

"It looks like people are getting out of Tocom [the Tokyo commodities exchange] and moving into stocks," said a dealer in Tokyo. "I think $600 will be a good support but I am not sure if it can stay above that level."

The sharp drop in gold last week – down from $644 to a two-month low of $601 per ounce – has brought out bargain hunters in India. The Times of India reports from Ahmedabad that Gujarat's bullion market has doubled its sales volume to 500 kg per day since Friday.

"As the gold prices continue to dip, overall demand has increased by 100%," said Monal Thakkar of Amraplai Industries, a leading bullion firm. "Our daily sales of gold have increased from 25 kg to 50 kg a day."

"The spurt in gold demand is mainly due to lower prices," agrees Girish Choksi, former president of the Ahmedabad Bullion Association. "Fresh demand is coming from investors and jewelers. The majority of the jewelers are increasing their inventories as they feel that the price below 9,000 Rupees is a reasonably good level."

Gold prices in the domestic Indian market have dropped 3.7% to Rs 8,950 per gram.

China should also see stronger demand in the next few weeks, too. "We will see an increase in jewelery demand in China before the Chinese New Year," reckons Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. He says gold is likely to trade between $610 and $615 today.

"But the funds and individuals in the US and Japan will get out of the commodities market," he warned. Mac Sugitani, executive director of Himawari Securities in Tokyo, also points to long liquidation by major investment funds.

"The bargain hunters are not really providing enough force to jack up prices," he told Reuters today. "The speculative trend-following funds have been liquidating their long positions. I don't know how long this will continue."

Bearish bets on the price of gold rose last week in the US futures and options market. Open interest rose in the week to Jan.3 increased by 4.3% said the CFTC yesterday. Commercial traders – often known as the "smart money" – cut the size of their long positions.

Small speculators increased their short bets too. Overall however the market remains more than 86% bullish.

Professional investors are also looking to buy gold-production right now. Australia's mining stocks closed Tuesday higher, as "the market thought resources had sold off enough considering what we've seen in the last few days," according to an analyst in Sydney interviewed by the Australian Financial Review.

Shares in DRDGold meantime, Africa's fourth-largest gold producer, rose more than 5% on Monday after the company reported that an Australian bank wants to discuss buying some of its assets in South Africa and Papua New Guinea.

But investing in mining stocks is never without risks. The value of Bendigo Mining Ltd was cut in half during today's Australian session after it admitted lower ore grades than expected and suspended production at its Bendigo site.

The Kangaroo Flat mine in south-east Australia "may be closed for month" as the company searches for higher grade ore according to newswire reports.

Yet Australia's frenzy in mining stock M&A goes on. For a full report from Melbourne, click here and read on now...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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