Daily Nugget – Chinese Gold Demand Hits New Record

Yesterday’s latest gold price drop was the steepest seen since mid-April, taking $80 off the price. Yesterday was also the fifth consecutive session in which gold dropped – a record not seen since January 2011.

COMEX Gold futures fell yesterday as the stronger dollar and rumours of QE winding down continued to affect the yellow metal. Suspicions of a ‘take-down’ of gold also continue, especially with Germany’s first gold instalment in mind. At the time of writing, the current gold price is $1,371.66/oz.

Premiums on gold bars reached new highs yesterday in Hong Kong and Singapore as the gold price drop lead to further shortages and increased demand, particularly in China. In Hong Kong gold bar premiums hit $5/oz, last week they were just $3. Kilo bars in Asia are no longer easy to come by and there is little scrap.

Reuters quote a gold dealer in Singapore “Honestly, we don’t have enough physical gold to supply to the Chinese. I just heard one Hong Kong party is quoting premiums at $6. This is mad”.

Reuters report that whilst gold premiums in Japan are at levels not seen since the 2011 earthquake, the demand is predominantly coming from China where demand reached an all-time high in March.

The Hong Kong data and Statistics department released data earlier this weeks shouding net gold flows in March from Hong Kong to China increased by over 126 tonnes to 223.519. The previous record was 114.372 tonnes.

Premiums in India are likely to continue to climb as speculation over the supply of gold into the country continues to be a source of worry, given the central bank’s plans to curb imports. On May 13th imports were limited by banks on a consignment basis only.

The World Gold Council’s report for Q1, released today, shows Chinese gold bar and coin demand hit 105.9 tonnes, a quarterly record.

Headlines this morning read ‘gold demand slides 13% to nine-year low.’ This is down to ETF outflows outweighing physical gold sales. The first quarter of 2013 saw ETF investors sell a record 182.1 tons, this has since dropped by a further 230.1t.

Central bank sales continued at full throttle, exceeding 100 tons for the seventh consecutive quarter.

Physical gold sales of both bars and jewellery, to India and China, saw both markets increase by 20%. The WGC expects to see Indian and Chinese demand reach 965 tonnes and 880 tonnes respectively.

The Indian government are hoping to pick off some of this demand, however, as they begin to sell inflation-linked bonds at the beginning of June. Analysts believe this will make little difference to the thousand-year old tradition to buy gold.

We suspect shortages will continue as supply was reported to remain unchanged, compared to Q1 2012, at around 1,051 tonnes. Mine output increased by 3.8% but this was offset by the fall in scrap supply of 4.2%.

Yesterday reports showed George Soros’ fund, reduced its investment in the SPDR Gold Trust by 12% in the first quarter of the year. Northern Trust and Blackrock, reduced their own holdings by at least half. Holdings in the SPDR have fallen by 303.7 tons this year.

Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.