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Gold Price Slipping "as Physical Tightness Fading", Says Deutsche

Physical gold price in Shanghai at discount to London, GOFO rising...
GOLD PRICE gains of 7% in the first quarter are likely to be reversed, reckons a note from Deutsche Bank's commodities team, because physical "tightness" in the market is receding.
"We view it as only a matter of time before gold re-tests the [US Dollar] lows hit in December last year," says the commercial and bullion bank, a market-maker for wholesale gold and silver in London.
Pointing to gold's 3-year low of $1180 per ounce – hit both last June and New Year's Eve – prices have since "been supported" by revived Western investor interest, continued central-bank demand from emerging economies, and rising private demand in China, Deutsche says.
"However, with Shanghai physical premiums staying low and GOFO [forward] rates turning positive, support from physical tightness has begun to fade," the note concludes.
Spot prices for physical bullion on the Shanghai Gold Exchange today fell for the 10th day in 12 sessions, but cut their discount to international prices to $2 per ounce, the smallest discount in over a week.
Physical gold bullion in Shanghai typically trades at a premium to London settlement, rising $50 above that global benchmark during the slump in world prices of spring 2013.
Gold Offered Forward rates – which turned negative for 1- and 3-month gold loans as prices rose sharply early last month – are meantime holding near last week's 5-month highs above 0.1%.
GOFO is the interest rate offered to potential gold borrowers by bullion banks in London. It is offered in exchange for the gold's cash value, on which the bank can then earn a better rate of interest – whilst also avoiding storage costs – for the duration of the swap.
Countering Deutsche's 2014 bear view, however, analysts at fellow German bank Commerzbank said this week they see a turnaround in physical gold investment demand from larger Western funds.
Following 2013's near-900 tonne liquidation from record-high global ETF holdings of 2,500 tonnes, "We are confident that the ETF outflows [from trust-fund vehicles] will stop once and for all during the course of the year," says Commerzbank, "and will no longer weigh in any lasting fashion on the gold price."

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