Gold News

Gold's China Plunge Gives "Fantastic Price" to Physical Buyers; "Long-Term Money" Seen Making "Substantial" Move into Bullion

Gold Prices held near yesterday's 3-week low in London on Friday, trading above $1090 per ounce as Asian stocks closed the week 5% lower on fresh signs that China is moving to curb its runaway credit growth.

Crude oil fell again and Western government bonds rose.

Sitting just above the Dollar-price it jumped to at the start of November – when the Reserve Bank of India announced buying 200 tonnes of bullion from the International Monetary Fund – gold slipped to a 7-session low vs. the Euro, trading some 3.7% below Wednesday's near-record high of €802.

UK investors looking to Buy Gold today saw the price dip to its lowest level since 17th Nov. at £672.85 an ounce.

"The expectations of many investors rest heavily on China," notes Mitsubishi analyst Tom Kendall, "from gold bugs who foresee the People's Bank of China stepping in to buy 100s (or even 1000s) of tonnes of gold, to palladium bulls who look forward to rapid growth in use of the metal in Chinese autocatalysts."

"All must hope that the [Beijing] government does not withdraw liquidity too sharply and that Chinese consumers keep spending rather than saving," says Kendall, writing in the latest Alchemist magazine for the London Bullion Market Association.

Between 2003 and 2009, the People's Bank of China bought 450 tonnes of Gold Bullion, overtaking Switzerland as the world's fifth-largest central-bank holder.

Private Chinese households meantime bought over 1800 tonnes of gold, overtaking India as the No.1 consumer market. (Learn more about China's 2010 Gold Rush here...)

Now "China is clearly moving to adjust both its policy stance and the language used to describe it," as one chief economist quoted by Bloomberg put it today, after Beijing's statistical bureau cut all mention of "moderately loose monetary policy" and a "proactive fiscal policy" from its latest economic outlook.

Asian stock markets outside of China fell harder than Shanghai, dragging Tokyo's Nikkei to a new low for 2010 to date, down more than 5% on the week.

London's FTSE-100 index dropped another 75 points by lunchtime, losing 3.6% for the week as mining and banking shares fell hard.

Commodity markets lost another 1% on the CRB index, with silver dropping almost 9% from Wednesday morning.

"Yesterday we had a lot of pressure on gold, and overnight we've seen some physical demand," said bullion-refiner MKS Finance's Afshin Nabavi in Geneva this morning.

"The Physical Gold market thinks these prices are fantastic to buy at. The dollar is also a little bit lower."

New analysis from miner-financed marketing and research group the World Gold Council today said Gold Investment demand remained strong in the last 3 months of 2009.

Research conducted for the WGC by the London's GFMS consultancy highlights in particular "a strong pick up" in physical and Unallocated Gold accounts being used by large investors.

"From September onwards," says today's WGC report, "substantial long positions were established by hedge funds and other 'non-traditional' institutional investors in bullion.

"GFMS believes that a good part of this demand was longer-term in nature, as many investors were concerned about future inflation and the outlook for the US Dollar."

Of investors surveyed by the WGC who already hold gold, almost half said they plan to increase their position from the current average of 5-7%.

"Overall," says the WGC's latest Gold Investment Digest, "assets under management in gold remain low...only about 1.1% of global assets. Other alternative investments correspond to about 4.4% of [global financial] assets.

"There is, therefore, ample scope for growth."

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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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