Gold News

Gold Prices Jump on India Import Debate, But Investing Demand Falls to 10% of Market from 40% Peak

GOLD PRICES jumped more than  $20 from last night's 2-week lows at $1231 per ounce Thursday lunchtime in London, rising sharply after Sonia Gandhi, leader of India's ruling Congress Party, asked the government to relax its anti-gold import rules ahead of this May's election.
 
Finance minister P.Chidambaram, being interviewed today at the Davos World Economic Forum in Switzerland, said there will be no change before next month's budget.
 
Opposition leader Narendra Modi of the BJP, who claimed this weekend that May's election is already won, has aligned himself with the gold and jewelry industry, repeatedly calling for the import restrictions to be lifted.
 
"Gold prices should be underpinned by strong physical demand in Asia, especially if Indian import restrictions are relaxed," says Jonathan Butler of Japanese conglomerate Mitsubishi, writing in this week's new LBMA 2014 forecasts contest.
 
"Should trade restrictions be relaxed," agrees Suki Cooper at London market-makers Barclays, "prices are more likely to find a stronger floor."
 
But reviewing 2013's market action, "The defining factor," says the new Gold Survey 2013 Update from Thomson Reuters GFMS, the leading data consultancy in physical gold flows, "[was] the investor sell-off and subsequent gold price declines."
 
Despite record levels of " gold bar hoarding" by Asian households (up 49% on 2012 despite the effective ban on Indian imports), plus a 33% surge in gold-coin minting to a new annual record, total investment demand worldwide fell by two-thirds to 458 tonnes on GFMS' data.
 
Down below 10% of the total market, that compares with a peak at 40% of global gold demand in 2011.
 
"While the private investor once again demonstrated a near-voracious appetite for gold in the wake of a sharp weakening in prices," says GFMS head of metals research & forecasting Rhona O'Connell, "the key story in 2013 was that of the professional investor's loss of interest in the metal."
 
Looking ahead, "Improving economic fundamentals [will] likely militate against hefty gold investment...but physical demand is expected easily to be robust enough to defend any test of the $1000 level."
 
Comparing last year's supply and demand – which ended with the balancing item of "implied disinvestment" equal to 8% of identifiable demand at 383 tonnes – "the underlying market surplus is likely to narrow in 2014," says GFMS new update.
 
"Indeed the fundamentals point to a gold market more or less in balance...lead[ing] to an expected price upturn in the final four months of the year" towards $1300.
 
Gold mining supply rose 4% for the year, says GFMS new update, but that was outweighed by a sharp fall in so-called "scrap" supplies from the cash-for-gold market worldwide.
 
Scrap gold sold by US households fell to a 5-year low. Middle East scrap flows dropped to a 12-year low as prices fell at the fastest pace since 1982.

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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