Gold finally succumbed to corrective pressures on Wednesday, dropping from a new four-month high of 1345.37. The yellow metal had become overextended as a result of the previous four consecutive days of gains.
While technical factors were likely the biggest contributor to today’s pullback, better than expected new home sales in January bolstered the dollar and shares. This may have resulted in some additional weight being applied to the yellow metal. However, gains in stocks were subdued and already seem to be fading.
Chinese physical demand remained robust in January. MineWeb reported that Chinese gold imports through Hong Kong were 83.6 tonnes in January. That’s a drop of 9% from December, but a whopping 326% rise versus the previous January.
The MineWeb piece notes that Chinese gold demand deviated from the more normal seasonal influence this year:
Historically December is a strong month for Chinese gold imports as traders stock up ahead of the Lunar New Year holiday, and it usually slips back in January, but this year was somewhat different with demand obviously remaining strong right through January.
Bloomberg Industries’ Kenneth Hoffman attributes this in part to anecdotal evidence that Chinese investors perceive rising inflation. Additionally, there are heightened concern about a potential banking crisis.
Meanwhile in the west, rising growth risks that have emerged since the start of the new year — along with a more recent uptick in geopolitical risks — have increased the safe-haven appeal of the yellow metal. As Mr. Hoffman points out, if nothing else it has staunched the outflows from ETFs that had been the primary source of supply of gold to physical buyers in Asia.