Gold News

Asian Physical Market "Still Keen to Buy Gold"

DEMAND to Buy Gold in physical form remains strong in Asia, according to several professional analysts and traders working in the bullion markets.

"The physical market is still a keen buyer of gold," says a note today from Walter de Wet, commodities strategist at Standard Bank, which produces its Gold Physical Flow Index to track global demand to Buy Gold as physical bullion.

"The buying interest remains broad based throughout Asia. Gold scrap sales are still sporadic."

The strong demand to buy physical Gold Bullion has seen a rise in premiums charges above the spot price on exchanges across Asia. UBS noted that premiums on the Shanghai Gold Exchange hit their highest level since February on Monday.

Monday was the first day's trading after last week's National Day Golden Week holiday, and therefore the first opportunity in over a week for many investors to Buy Gold.

"The strong buying of gold, as reflected by our GPFI, is consistent with the high gold premiums on the SGE," notes de Wet.

"Since the start of September, gold has traded almost consistently at a $10 premium or higher relative to Loco London (as high as $20 in recent days)."

Premiums in Hong Kong rose as high as $4.50 per ounce earlier this week, with traders reporting heavy demand from mainland China, while in Singapore dealers were reported to have backlogs of orders dating back nearly a fortnight.

"Chinese demand is likely to remain strong until the end of the year," says one Hong Kong dealer.

"Super strong post Golden Week sales figures [imply] a very upbeat Q4 2011 and Q1 2012 physical market," says another, pointing out that peak sales are normally hit around January or February.

While Asia has seen strong demand to Buy Gold, western demand appears to be less so.

The gross tonnage of gold held to back shares in world's largest Gold ETF the SPDR Gold Trust (ticker GLD), for example, fell by 0.16% from the end of last week to hit 1227.5 tonnes by Thursday. There has also been a decline in bullish speculative gold futures positions on the New York Comex exchange.

"In contrast to the physical market, the futures market has seen the net speculative length decline to its lowest level in more than two years," notes de Wet.

"The decline in the net speculative position comes mostly on the back of long liquidation (as opposed to a rise in short positions). We believe there is room for new longs to be added. We continue to believe gold will push higher into 2012."

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