Daily Nugget: China Gold Demand Climbs 54%

Overnight spot gold climbed one percent – earlier it hit $1,333.31, its highest in two weeks. Spot silver prices also rose 2.2%.

On Friday the SPDR Gold Trust saw its first increase in gold bullion holdings since June 10 – inflows totalled 1.8 tonnes. Many analysts suggest that this climb indicates a change in perspective regarding the US recovery and the case for gold investment.

Towards the end of last week the price of gold rallied following supportive data from China. Trade and economy data from the Eurozone and wider Europe drew some attention away from the Fed tapering debate.

Friday signalled the end of Wall St’s worst week since June; the dollar remains weak and the US economic recovery was called into question once again on Friday after wholesale inventories fell for a second quarter. This provided further support for gold over the weekend.

This week sees the inflation figures, retails sales and manufacturing data from the US all key data points which may give some indication as to the Fed’s next move at the September meeting.

Many analysts, responding to surveys over the weekend, believe tapering has already been priced in. Should the FOMC decided not to cut back bond purchases in the third-quarter then we are likely to see a strong performance from both gold and silver.

Other economic data to look out for this week are first estimates of GDP for Japan, the Eurozone, Germany and France. All eyes will be on the Eurozone where it is likely to still be in recession for a seventh consecutive quarter.

China’s appetite for buying physical gold

This morning the China Gold Association said the country’s gold consumption for the first half of the year reached 706.36 tonnes (54% up on last year) compared to 832.18 tonnes for the whole of 2012. Gold mining output (which is not exported) reached 192.82 tonnes between January and June, up 9% from last year.

Demand is expected to be slightly less in the second half of 2013, many officials believe jewellers and traders were stocking up whilst prices were low. Last month jewellery sales increased by 42% on last year.

Gold controls lead to unemployment

India’s central bank controls on gold bar imports are pushing premiums to near-record levels. In the week ended August 2, jewellers paid around $30/ounce above London cash price, last week this increased to $40/ounce. The All India Gems & Jewellery Trade Federation believe premiums could climb to as high as $100 if the government do not ease controls.

Those who are benefiting from the import restrictions are those who held stock prior to controls increasing, they are able to drive premiums up in the knowledge that gold imports have been halted by jewellers and traders.

The Director of the All India Gems and Jewellery Trade Federation said that imports in the second half of 2013 are expected to fall below 150 tonnes, 175 tonnes was predicted in July. In the second half of last year, 478 tons were imported.

The Federation are calling on the government to relax the controls given the rising threat of industry collapse and unemployment. 20 million ‘artisans’ are reported to be employed in the gold jewellery industry.