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China's Gold Buying "Make or Break" for 2014 Prices

Buying gold at the same pace as 2013, China would drive 2014 prices higher says analyst...
GOLD BUYING by private households and investors in China will prove "make or break" for prices in 2014, says the head of Commerzbank's commodity team.
"Should Chinese demand continue to be around 100 tonnes per month [as in 2013]," said Eugen Weinberg to Bloomberg on Monday, "then we're likely to see a strong recovery in gold prices.
"But should the Chinese buyers become fed up with the negative performance of gold...then we're likely to see further slide in the gold price."
Only 12 years since buying gold for investment and trading was first deregulated by the Communist authorities in Beijing, annual demand in China overtook India as the world's No.1 for the first time in 2013.
Of these various factors now playing on the gold price, "We believe strong emerging market demand has the most longevity," says a note from London market-making bullion bank HSBC.
With the Chinese New Year starting on January 31st, "China's merchants may be well stocked ahead of the lunar New Year," HSBC's analysts said Monday, "and so near term demand from that source may ease. But this would likely be temporary."
However, and also pointing to the risks of continued sales by Western fund managers using ETF trust funds, "Gold is unlikely to attract safe-haven bids," says fellow London market-maker Barclays.
"Instead, the focus will shift to demand and physical demand from the East in particular. But when demand sets the price for gold, the trend tends to be lower or sideways."
In tonnage terms, global demand for buying gold as jewelry peaked at the end of the 1990s, when prices hit the bottom of a 20-year bear market.
China's gold imports in 2013 may have topped 1,000 tonnes, accounting for all of the ETF gold sold by trust funds in the West and more. But while "the surge in physical [gold buying] in the East is a bullish development," agrees ScotiaBank in its latest monthly report for clients, "it may be that the shift in gold from West to East continues to be observed, but ignored.
"Until institutional investors get worried about the financial system again, gold may take a back seat."
Against that, "What we haven't had before," counters Weinberg at Commerzbank, is this level of demand for buying gold amongst Chinese investors and consumers.
Now forecasting a possible 12% rise in world prices in 2014, and noting that Hong Kong "[is] the trading hub" for China's flows, "This is likely to be make or break for this year," he concludes.

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