Comex Gold Is Headed For Asia

Gold and silver prices are headed for their biggest weekly gain in a month following a drop in the US Dollar and equities. Comex December Gold reached $1,369.60 yesterday, a climb of 16% since the low of late June, silver futures also soared with the September contract climbing 5.68%.

A range of factors are being suggested as the reasons for the rally in the spot gold price, namely the escalating Egypt crisis and news of elevated gold buying in Asia.

Yesterday it was clear that no-one has a clue if or when the Fed will slowdown stimulus. Mixed data saw the US dollar fall from its one-week high, the Dow Jones industrial average plummet the most in two months and the FTSE100 experience its worst day in nearly two months.

The jobs and inflation data released yesterday suggests that the Fed will look to taper in September, however industrial production and the general business conditions index disappointed prompting calls for stimulus to continue at the current pace.

ETF demand will not affect the gold price
Holdings in the SPDR Gold rust continued to climb, increasing to 912.92 tonnes of gold bullion bars. The renewed interest in gold-backed ETFs has prompted many analysts to ask if institutional selling is over, giving way to a rise in sentiment towards gold and a renewed feeling that gold is a safe haven.

Given data this week showed that Paulson & Co had halved its holdings in the SPDR Gold Trust to nearly 10.2 million shares, Northern Trust by 5 million, and Bank of America and UBS by 2 million shares each, it would be surprising if we were to see any outflows on such a scale for some time. The outflows also go some way to explaining the gold price drop in the last quarter.

Our recent research showed that ETFs represent only a small percentage of gold investment demand, however it carries a significantly higher weighting when it comes to the gold price. The cut in positions by major funds and banks, in the SPDR Trust may now mean that the gold price can resume its long-term price rise. We do not believe that the news of Paulson et al’s change in position will impact the gold price, instead markets are looking ahead to events in the global economy.

Asia’s demand continues to fascinate
Kitco reported yesterday that UBS believe the gold leaving COMEX warehouse Is headed for Asia. But, they do not believe that the low levels of gold mean we are facing a gold shortage, reminding us that there are plenty of other above-ground gold stocks. In our own research we also found Comex, based on May inventory levels, was not as under the levels of stress suggested by other market commentators.

Yesterday the World Gold Council reported that India had seen a 52% increase in gold imports in the second-quarter, despite a rise in import duties in April. Following this news the RBI announced a ban on gold coin imports, this comes after a further rise in the import duty at the beginning of the week.

India isn’t the only country that blames gold for its current account deficit and according to BNP Paribas the current account deficit would have narrowed in June has gold imports not increased by $1.8 billion.