Gold News

Gold Jumps to 5-Month "Early Bird" High on Greek-Euro Deal, India & China's Gold Demand Surging

Gold Prices hit their best level for Dollar investors since last Dec.'s record spike to $1226 an ounce at the start of Asian trade on Monday, as the US currency fell hard on the European Union's weekend announcement of a €30 billion loan facility for Greece, with a further €10bn available from the IMF ($55bn all told).

"Early birds have to love Mondays," says one Hong Kong dealer in a note.

"Most of the range and excitement in gold were already seen before [Japan's] Tocom opened – something that's happening with more regularity."

Two days after Fitch Ratings cut Greece's credit rating – and said further cuts towards the limits of "investment grade" are possible – ministers from the European Union made "practical arrangements, notably financial" to lend emergency funds to Athens at below-market cost.

"If needed," the statement said Sunday, a 3-year loan would cost 5.00%, rather than the 7.45% charged to Athens by bond-market investors last week.

Greek government bonds leapt with the Euro currency at the start of Monday's trading. But both soon slipped back, pushing the Gold Price in Euros above €857 an ounce – a level first broken only on Wednesday last week.

European shares also gave back their early jump, fading to break-even on the day by lunchtime in London.

"Private investors [in Germany] do not seem to be deterred by this record price," notes Wolfgang Wrzesniok-Rossbach in Hanau for the Heraeus refining group.

"Demand for investment Gold Bars – mainly for medium-sized bars between 1 ounce and 250 grams – has subsided only marginally."

"Demand for physical Gold has shot higher in recent weeks for a number of reasons," says the latest Metal Matters from bullion bank Scotia Mocatta, citing India's spring wedding season but particularly Chinese demand.

"Chinese [Gold Mining] producers are reportedly holding back from selling as they expect a pick-up in price...However, it may be that China's government is buying from producers and therefore forcing those who normally buy from producers to import."

One week after gold-marketing group the World Gold Council announced a new tie-up with the world's largest bank, ICBC of China, "It is understandable that China, with a combination of strong economic growth, a growing middle class and a growing population, is seeing demand for gold increase," says Scotia.

"Indeed, whereas India used to be the bellwether of gold demand, it maybe that China is the new bellwether."

Strong Indian Ruppee prices have "failed to dampen" India gold buying, the Business Standard reports today after the Gujarat State Export Corporation reported almost 40% growth in local gold imports for the year-ending March 31st.

"There has been a significant increase in gold imports this year," said Samir Mankad, director of GSECL, which arranges gold imports through Ahmedabad's airport.

The latest US data on Friday meantime showed the fastest jump in "net long" gold positions held by speculative traders in Gold Futures and options since Sept. last year.

Equivalent to 833 tonnes of metal, the "net long" (of bullish minus bearish bets) in speculative trading showed a massive 20% increase, reversing the previous 4 weeks' decline.

Overall, the total number of Comex gold contracts (the open interest) swelled by 7% – its fastest pace since Oct. '09 – to a two-week high. It remained more than 16% below its peak of last November.

Net long speculative betting remained almost one-fifth below its peak of 6 months ago.

"Gold has seen the biggest rise in speculative activity, followed by silver," notes Walter de Wet at Standard Bank of the latest data. "Crude oil has also experienced an ongoing increase in non-commercial long positions."

But "Based on the [official US] data, we favour gold and copper relative to silver and crude oil, and at current speculative levels, we view gold and copper's downside as the better protected of the commodities."

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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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