Safe Haven Demand Lower for Gold as Stock Markets Hit New Highs
WHOLESALE market prices for buying gold climbed back above $1460 an ounce during Wednesday morning’s London trading, in line with its range over the last week, as stocks gained and longer-dated US Treasuries dipped ahead of an auction of 10-year bonds later today.
Silver climbed back above $23.90 an ounce, while copper also gained and oil prices fell.
A day earlier, gold dipped as low as $1440 an ounce in Tuesday’s US session before regaining some ground overnight.
“We believe there will be more sideways price action between $1441 and $1495 before the metal takes another run down to $1323,” says the latest technical analysis from Scotia Mocatta.
“Demand for gold as a safe haven is currently lower amid sharply rising equity markets,” adds today’s commodities note from Commerzbank.
European stock markets also ticked higher this morning, with Germany’s Dax setting a new all-time high, following gains in Asia after China released figures showing its trade balance returned to surplus last month, with year-on-year export and import growth both stronger than expected at 14.7% and 16.8% respectively.
“I have no strong conviction whether the [Chinese trade] data reflects reality,” says Zhang Zhiwei, Hong Kong-based chief China economist at Nomura, noting that China’s State Administration of Foreign Exchange recently announced new rules aimed at preventing capital inflows being disguised as trade payments.
“China’s export growth is probably overstated by around seven percentage points,” adds the currency team at Standard Bank.
“[There are]anomalies caused by double-counting, capital inflows being disguised as trade receipts, some tax evasion and speculative currency positions, which are being done via Hong Kong…stripping out potential distortions, China’s exports increased by around 6.5% year-on-year in April, up from 2% in March.”
Elsewhere in China, the world’s second-biggest gold buying nation last year, “premiums on the Shanghai Gold Exchange remain elevated, although average daily volumes have eased by about 34% from the exceptional levels over the last couple weeks” says a note from UBS this morning.
“[Chinese] investment demand [for gold] should continue to stay strong through the rest of the year because of limited investment alternatives,” reckons Zhang Bingnan, secretary general of the China Gold Association.
“There’s still a shortage in the physical metal,” one Hong Kong dealer told newswire Reuters this morning.
“Premiums for gold bars are at $3.50 an ounce.
“Supply is indeed tight,” agrees one Singapore dealer, “[but] demand from Indonesia and Thailand has subsided, and in fact there’s some selling today from their side.”
Turning to world number one India, “our index of India physical flows continues to suggest demand that is well above average, but here too volumes have come off the peak of the previous two weeks,” says UBS, adding that next week’s Akshaya Tritiya festival, traditionally an auspicious gold buying occasion, means demand should “hold up reasonably well in anticipation”.
“However, it is less clear how resilient Indian demand will be afterwards. Last year appetite dried up shortly after the festival, which then fell on April 24, whereas back in 2011 offtake remained elevated for two weeks after Akshaya Tritiya, amid weaker gold prices.”
Proposals from India’s central bank to restrict imports of bullion by banks “will lead to a supply shortage in the market” according to Samir Sagar, director of Manubhai Jewellers in Mumbai, speaking to the Economic Times.
“Indian consumers will have to pay 3% to 4% more for jewelry during the lean season. This may go up to 7% to 8% during Diwali and wedding season.”
The Reserve Bank of India proposed last week to restrict banks’ import of bullion on a consignment basis – where the metal is shipped but remains the property of the supplier – to meet only demand from gold jewelry exporters. Gold and silver was India’s second biggest import item last year behind oil, and bullion imports are blamed for exacerbating India’s trade deficit.
“I don’t see much of an adverse impact of this measure,” Mehul Choksi, managing director at jewelers Gitanjali Group, said last week.
“There are other ways to import gold, like importing it by paying a fixed price or taking it on loan.”