Gold Rises with Euro on "Chinese Buying", "Least Vulnerable" to Sell-Off as Doubling of China Demand Forecast
Gold Prices ticked higher against the US Dollar on Monday morning in London, rising together with the Euro and world stock markets after "Chinese buying emerged" according to one Hong Kong gold dealer.
"The downside on Gold Prices is limited," said another – Fortis Nederland's head of commodity derivatives, Wallace Ng – to Bloomberg.
"I don't see gold trading below $1100 an ounce for now."
China's economic growth over the last 3 months likely hit 12% per year, according to two senior Beijing economists separately quoted by the Chinese press today.
Yu Bin at the State Council Development Research Center and Fan Jianping, senior economist at the State Information Center, both now forecast a dip in GDP growth as the central bank looks to curb inflation and debt.
Nevertheless, "Gold consumption in China will continue to catch up with the rest of the world...and has the potential to double during the next decade," reckons former Credit Suisse analyst Eily Ong, now investment research manager at the mining-backed World Gold Council, in a new report.
"China has recently provided strong support for global gold demand during a period of weakness in other parts of the world. The combination of a healthy outlook for demand and relatively inelastic supply in China may be seen as perfect conditions for gold."
Rising 85% by weight since 2004, annual gold demand from Chinese households has more than quadrupled in Dollar terms.
Based on World Bank estimates of China's household savings rate – probably worth some $660bn last year – the proportion of private savings spent on gold investment and jewelry each year has almost doubled since the market was deregulated in 2001, says analysis by BullionVault, reaching 2.1% in 2009.
"The real value of gold for investors lies in the reliable diversification it provides and its low correlation with other assets," says Ong.
"Gold also consistently delivers a lower average volatility than most mainstream assets and commodities."
Silver Prices also rose to a 6-session high against the Dollar on Monday morning in London, rising to $17.27 an ounce to add almost 3.0% from last Wednesday's low.
Over on the currency markets, meantime, the Euro and British Pound slipped back vs. the Dollar, ticking lower from 4-day highs at $1.35 and $1.50 respectively.
That buoyed the Gold Price north of €824 and £741 per ounce.
New Eurozone data today showed economic, consumer and industrial confidence all improving across the 16-nation currency union in March, but remaining depressed.
Here in the UK, non-financial businesses repaid almost £2 billion of their outstanding debt last month, the Bank of England reported, taking their outstanding debt to a 17-month low.
"Evidence of QE's effectiveness remains somewhat elusive," notes Richard McGuire, fixed income strategist at RBC Capital Markets.
Over the 12 months since the Bank of England's £200bn quantitative easing program began, borrowing by UK businesses outside the financial sector has fallen by £16.5bn, a drop equal to some 1.2% of gross domestic product.
"Physical demand for gold has supported the metal despite substantial Dollar strength," notes this morning's Commodities Daily from Standard Bank's London office.
Over on New York's Comex derivatives market, in contrast, bullish speculation by non-industry players continued to fall last week, new data showed after Friday's close.
Net speculative length – meaning the number of bullish minus bearish bets held by large and small speculative traders – fell below 750 tonnes equivalent for only the second time since Sept. '09.
As a proportion of all open Gold Futures and options contracts, the net long position held by hedge funds and other large speculators fell to 11-month low beneath 30%.
Analyzing the latest US derivatives data for gold, silver, platinum and palladium, "[It] seems to indicate that gold is still the least vulnerable to a sharp correction," says Standard Bank.
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