Gold News

Gold Demand "Firm Long-Term" But Perception of "Good Times" Weighs on Investor Buying & Scrap Supply

GOLD DEMAND slipped in London's wholesale market Tuesday morning, with bullion prices falling to 1-week lows some 1.3% beneath yesterday's peak at $1305 as Asian stockmarkets closed higher but European shares slipped with weaker Eurozone bond prices.
 
What one dealer called "light, dull" volumes left precious metals traders not already busy with London's annual Platinum Week of conferences and meetings to digest the latest gold-market demand and supply data.
 
New UK data meantime showed inflation in consumer prices accelerating in April to return to the Bank of England's medium-term target of 2.0% per year.
 
Ten-year UK gilt yields rose to 2.62% on the news, and Sterling spiked half-a-cent vs. the Dollar, helping the gold price for UK investors erase last week's 0.6% rise at £765 per ounce.
 
US Treasury bonds are priced for "dovish" comments in tomorrow's release of US Federal Reserve minutes, says Bloomberg.
 
"It is clear that the longer-term underpinnings of the gold market – such as jewelry demand in Asia – remain firmly in place," says Marcus Grubb of the World Gold Council, launching the latest Gold Demand Trends report today
 
Total gold demand globally was unchanged in the first quarter from Q1 2013, the market-development group's analysis of Thomson Reuters GFMS' data says.
 
But within that total, gold bar and coin demand fell hard, down 39% by weight and 52% lower by value from Jan-March last year, while holdings for gold ETF trust funds – predominantly used by professional and institutional investors, and shrinking by one-third last year – were flat for the quarter, avoiding heavy sales for the first time since end-2012.
 
"When times were bad," the Wall Street Journal quotes commodity strategist Bart Melek at TD Securities, "people didn't mind paying a premium to own gold.
 
"But now that the existential risks have passed, that desire is no longer there."
 
Q1 jewelry demand in contrast rose to a 9-year high on the World Gold Council's new market data, led by what it calls "a strengthening economic environment."
 
Central bank purchases were 70% above their 5-year quarterly average, led by Iraq and Russia, and the Eurozone became a net buyer thanks to Latvia joining the single currency union, adding gold to its reserves as part of the Euro treaty.
 
Western Europe's existing "legacy gold holders" meantime retained their gold bullion reserves once again, in contrast to the heavy sales of 10-20 years ago.
 
"Participants can find comfort" in Monday's revised Central Bank Gold Agreement, says Swiss investment and bullion bank UBS, noting previous fears of possible Eurozone gold sales "during the height of the Eurozone crisis" and into 2013.
 
But "we find this new Agreement a little unsatisfactory," counters Australian bank Macquarie's commodity analyst Matthew Turner. Because while renewing the pact "would help short-term stability" in the market, opting instead to scrap the deal would have sent "a positive signal to other central banks [long-term] about gold's practicality as a reserve asset."
 
Monday's "non-renewal renewal" of the CBGA "seems to achieve neither," says Turner.
 
On the other side of the gold market, gold mining supply rose 6% year-on-year in Q1 as producers failed to trim output – as some analysts had predicted – despite the second-lowest quarterly average price since 2010.
 
Lower gold prices did deter scrap supply however, with recycling sales dropping 13% to "very much the lower end" of the sector's post-financial crisis range according to the World Gold Council.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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