Gold: China To Overtake India

Yesterday COMEX futures hit a three-year low, going below the dreaded $1,300/oz mark.

Of course Bernanke’s comments were blamed for the gold-price moves, whilst underlying support for gold appeared to disappear as poor manufacturing data from China and concerns over a 30% fall in India’s gold bullion imports reared their heads.

Fears over the Shanghai Interbank Offered Rate (Shibor) mean that, combined with fears over QE and the decline in the cost of borrowing and bond yields, we are now seeing a somewhat perfect storm thrashing around the global markets. It’s not just the price of gold suffering.

The US dollar index gained strength yesterday, recovering from Wednesday’s four-month low. This is unsurprising given the bullish sentiment in the Fed’s comments and mooted moves.

Many analysts are expressing concern for the entire raw commodity sector, all of which suffered yesterday. There appears to be a general belief that the general bearish sentiment in this sector may be around for a few months.

Gold Price Bears
A survey carried out by Bloomberg finds respondents to be at their most bearish on gold than they’ve been in nearly 2.5 years. Many sight Bernanke’s comments and the lack of inflation across economies as a reason for further gold price drops – below $1,200/ounce.

This morning the gold price has picked itself out of its trough of the three year low thanks to renewed interest and buying from China. Reuters report however that the metal is still headed for its worse week in nearly two years.

This morning both the gold and silver price have rallied somewhat on the back of hopes that the drop may renew some bargain buying in the East. According to CPM Group it is too early to say whether or not the enthusiasm to buy gold we saw following April’s rout (and continued well into this month) will continue following this latest fall.

Silver prices fell past a significant psychological level -- $20 -- yesterday, like gold this is a 2.5-year low. Silver investing continues to disappoint investors, having been in an eight-month downtrend.

According to Jeffrey Christian of CPM Group ‘the worst of the current decline is probably behind us as gold prices may stabilise and rebound…it’s going to be very important to see in the next few days how enthusiastic investors are.’

Yesterday we posted a link (see the Social Gold Mine) to a very brief post from the TF Metals report in which those holding gold and silver were reminded that the reasons why we own these metals is exactly for the very reasons that have created so much upset and upheaval across the markets in the last month or so. QE does not go away the moment someone says they may slow the tap down, the impact of the easy money programme is clearly widespread given the panic seen in markets at the idea that they may no longer get their fix.

Low and behold banks have begun reforecasting their gold and silver price forecasts. If you needed any evidence that forecasts don’t work then this is it. If they were so accurate then surely they would foresee the response of markets to such an announcement from Bernanke. Analysts at UBS believe that tapering is most likely to come in to effect in the final quarter of 2013, as opposed to the first quarter of 2014. The bank cut their gold price forecast yesterday to $1,440, from a previous $1,660. In the long-term forecasts, UBS have also cut these; the 2014 estimated average price is now expected to be $1,325 from $1,625 whilst 2015 estimated average price was cut to $1,200 from $1,500.

The bank express concern over gold’s inability to regain investors’ positive sentiment since the April rout. As we will write about later today, we disagree that there is poor sentiment in the physical gold markets, there is possibly a bit of nervousness, but on the other side of the globe we see clear, strong demand for gold.

Speaking of strong demand, the China Gold Association announced over night that they believe China is set to overtake India as the world’s largest bullion consumer by the end of the year.

“We saw some frenzied buying following gold’s rout in April and our preliminary estimate confirms that consumption reached about 137 tonnes, more than double a typical month,” Zhang Yongtao, the association’s vice-chairman, said yesterday in Zhaoyuan, Shandong province. “Chinese demand for gold will remain robust because people are getting wealthier and investment choices are limited.”

Yesterday the volume on the SGE benchmark cash contract climbed to a four-week high of 21,776 kg. This cash settled contract fell by 4.5% to a near three-year low.

In India meanwhile the price fall was described as ‘contained’ thanks to the weak rupee, which is causing much concern. Haresh Soni, chairman of the All India Gems and Jewellery Trade Federation said yesterday: “Despite a sharp fall in prices, Indian consumers will not come and buy because for them, due to the weaker rupee and additional import duty, prices are still higher than the international price.” Soni believes Indian consumers embrace this fall in the gold price to buy gold.