Daily Nugget: LBMA’s Record Month For Gold

Yesterday gold hit a two-week high supported by safe-haven demand and increased technical buying as the gold price remained above $1400. The rise in holdings of gold-backed ETFs also helped to underpin gold prices, however holdings remain near a four-year low. Gold is now set for a second-consecutive week of gains. Gold futures prices hit a two week high yesterday.

Whilst things still look slightly more bearish for silver, they continue to be supported by the lower US-dollar index and gold’s performance.

Safe haven demand for gold was predominantly in the Asian market, particularly in Japan where the Nikkei index was down 5% yesterday, 15% for the week.

Further safe haven demand was seen later in the day thanks to weak US data which caused the US dollar index to fall. Jobs data was lower than expected (the third fall in four weeks) whilst a reading for GDP for Q2 was also lower. The Bureau of Economic Analysis said its second estimate of first-quarter U.S. gross domestic product rose year-over-year by 2.4%, 0.1 % lower than the initial reading.

The disappointing US data has no doubt increased doubts over the Fed’s thoughts on stimulus measures. Rumours abound that they intend to scale back bond purchases but given yesterday’s weak data the markets may be concerned that it is too early to discuss such steps.

LBMA 20-month gold trade high

Yesterday the LBMA announced that the average amount of gold transferred daily between members’ accounts in the month of April averaged 24.1 million ounces, a 10% rise month-on-month, after the fall in gold prices increased gold buying. In contrast the amount of silver transferred climbed by 25% to 165.2 million ounces per day. The number of transfers rose for both gold and silver, by 60% and 30% respectively. The deals settled by dealers were much smaller for both metals. The average value of gold transfers were $35.8 billion, an increase of 3%, whilst silver transfers rose by 9% to $4.17 billion. The number of gold transactions were the highest on record at 5,395 on average per day.

Gold allocations

Yesterday the World Gold Council released a new report which ‘examines the growing trend of banks actively looking to diversify their reserve portfolios.’ The Council questions the dominance of the US dollar as a reserve currency in the future and instead sees gold allocations growing alongside ‘new alternatives’ such as the Chinese renminbi.

In their optimal portfolio analysis it is assumed central banks will continue to hold 65% of their assets in dollars and euros, whilst gold and the Japanese Yen each receive an 8% allocation and the renminbi a 4% allocation.

China’s gold buying

Further data from the WGC also shows premiums were at ‘exceptional levels’ in Asia following the drop in gold. Many state this was down to a gold shortage, whilst this is possible it may also be due to gold bullion sellers offering gold at an above-spot-price given they had paid a higher price for the items in the first place, thereby seeking to get closer to break even.

Head of China Gold Association, Zhang Bingnan, yesterday warned that buying levels seen in April and May are unlikely to be repeated in the second half of the year. China’s gold demand reached 320.54 tons in the first quarter, with purchases of gold bars climbing 49% to 120.39 tons. Annual gold demand is expected to exceed last year’s 776.1 tonnes.