Gold News

Demand to Buy Gold "At Risk" from China Slowdown as Record-High Oil Means "Serious Trouble" for Airlines

The price to Buy Gold fell hard on London's wholesale market at the start of trade Thursday, dipping near to a 2012 low beneath $1634 per ounce as world stock markets and commodity prices also dropped.

Silver Prices also fell more than 1%, touching their lowest level against the US Dollar since Jan. 25th at $31.70 per ounce.

A raft of worse-than-expected European data was preceded by news of China's weakest manufacturing activity since November. Output has now contracted for five months running on the PMI index of purchasing managers' activity.

"Shrinking manufacturing activity in March signals slower demand for resources," says a column at BreakingViews. "Strong imports have heightened the risk of overstocking in precious metals."

A surge in China's gold imports during late 2011 was followed by sharp falls in December and January, even as the Chinese New Year – a peak season for consumers to Buy Gold – drew near.

Market-development organization the World Gold Council said earlier this month that retailers in Beijing and Shanghai reported "fantastic" sales over the Lunar New Year, "completely clear[ing] out the inventory they had built up."

This morning "A lot of people are on the sidelines [in precious metals] at the moment," said Bruce Ikemizu, head of commodities in Tokyo for Standard Bank, quoted by Reuters.

"We saw some bearish signs, but the market seems to be holding well. The upside at $1,800 is still looking quite heavy, and investors are waiting for a cue" to Buy Gold.

"We feel that gold is consolidating and remains vulnerable to the next leg lower," said Russell Browne at bullion-bank Scotia Mocatta in New York after Wednesday's close.

"Silver also continues to consolidate...[in] a daily downtrend providing near-term resistance around $32.60."

"[Silver] now trades within a downtrend channel and is expected to slide further still," says the latest technical analysis from Axel Rudolph at Commerzbank, forecasting "a decline to below the $26.36 January, September and December 2011 lows within the months ahead."

The Gold/Silver Ratio of the two precious metals' prices yesterday hit a 1-month high at 51.6. The ratio rises when gold outperforms silver, and vice versa.

Last April the Gold/Silver Ratio hit a 32-year low, with 1 ounce of gold equal to only 30 ounces of silver. It peaked near 85 in the aftermath of Lehman Bros. collapse in late 2008.

Early Thursday, "Speculation of reduced demand for raw materials from China has continued to weigh on risk sentiment," says Swiss refinery and finance group MKS in a note.

"People are concerned about China's economic growth," Reuters quotes a Hong Kong bullion dealer.

"If growth slows down and inflation eases, people may choose not to Buy Gold."

European economic data also pointed lower on Thursday, with Germany's manufacturing PMI contracting faster than analysts forecast and Eurozone industrial orders dropping 3.3% in January from a year earlier.

UK retail sales also missed analyst forecast, shrinking 0.3% in February from the month before.

Brent crude oil prices meantime fell 1% Thursday morning to $122 per barrel after French industry minister Eric Besson told journalists that France and other major governments are "studying" a joint release of emergency stockpiles to ease prices lower.

Some 85% of US adults think Congress and President Obama "should take immediate actions to try to control the rising price of gas," a Gallup poll said earlier in March.

In both Euro and Sterling terms, Brent crude last week hit fresh all-time highs, rising 3% above the previous peak – hit just before the global financial crisis accelerated with the collapse of Lehman Bros. – of July 2008.

"We can reel off a whole load of airlines that are teetering on the brink or are really gone," said Tim Clark, president of Emirates Airlines in Dubai, the world's biggest international carrier, to Bloomberg on Wednesday.

Pointing to record oil prices and a slump in demand, "Roll this forward to Christmas, and we're going to see [the airline] industry in serious trouble," says Clark.

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