Gold News

Gold Price Drop "Sparked Strong Asia Demand", Reducing London Stockpiles & Sending Borrowing Cost to 15-Year High

GOLD PRICES slipped half-a-per-cent below last week's finish in Asia and London trade Monday morning, holding below $1200 per ounce as world stock markets rose in quiet trade ahead of the US Thanksgiving holidays.
 
Gold's recent drop to new 4.5-year lows beneath $1200 per ounce has seen "a strong physical demand response from Asia" says Jonathan Butler at Japanese conglomerate Mitsubishi in his weekly analysis, pointing to trade data from Switzerland – the world's major producer of smaller gold investment bars.
 
"The west to east trade in [large, wholesale] Good Delivery bars, after conversion [to kilobars] at Swiss refineries, is alive and well," says Butler, "and is therefore reducing the available supply of good delivery metal" in London.
 
That move, first noticeable during the 2013 gold price crash, is again "helping push gold forward rates into negative territory", meaning that would-be lenders of gold bullion are demanding better rates of return from borrowers needing metal at short notice.
 
Monday morning saw the indicative GOFO rate, as reported to the London Bullion Market Association by its large market-making members, reach new 13-year extremes for 1-month loans and new 15-year extremes for 12-month deals.
 
But so far, notes Butler at Mitsubishi, this 'tightness' in the gold lending market "has yet to spill over into the outright price."
 
Chinese gold prices moved over 1% higher in Shanghai today, holding a premium to London quotes of $2.40 per ounce, and so inviting wholesalers to buy and ship Western metal to Asia.
 
Retail investors in South Korea are growing their bullion investments, local press reports, with 3 major banks now offering gold bars in-branch.
 
Surging gold imports to India – now the world's top consumer nation once more, according to data from market-development organization the World Gold Council – continue being blamed for a rise in the country's current account deficit with the rest of the world.
 
To try and meet domestic demand without growing imports, the Titan jewelry group – part of the giant Tata Industries – is relaunching its Tanishq brand 'gold harvest' scheme, says the Hindu Business Line.
 
Inviting existing gold owners to put their gold on deposit – freeing it for re-sale – has so far failed to mobilize India's huge private gold holdings. But "the return [offered to customers] now is around 12%," says Titan's chief executive for jewelry, C.K.Venkataraman.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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