Physical Gold Purchasing Continues As Gold ETFs Decline

Gold slipped slightly this morning, despite gaining one percent in the previous session. Gold reached a recent high during trading yesterday, driven by physical buying and the euro’s one-week high against the US dollar and two-month high against the Australian dollar. Gold futures posted their biggest gain in a fortnight.

Gold’s rise was the first in three sessions, however profit booking by speculators and further liquidation of ETF holdings brought it back down again. Holdings in gold-backed ETFs remain at a four-year low. SPDR Gold Trust (GLD) said holdings fell 0.6% yesterday, to 1,501.47 tonnes.

Given the strong performance of the DJIA and the S&P 500, many analysts believe this has contributed to the ‘negative perception in precious metals’ said TD Securities analysts.

We are seeing a real battle between those who hoard physical gold and those who buy gold ETFs. Physical buying remains strong across many parts of Asia, premiums in Hong Kong are still at multi-month highs. Buying in Singapore is reported to have slowed down.

UBS said in a note yesterday that China’s gold demand has been ‘exceptional’ (tell us something we don’t know). According to UBS’ database, China’s gold net imports from Hong Kong in March of 130 tons has not been seen in over a decade’s worth of data. Total Q1 gold consumption of 320.54 tones is the equivalent of 11% of total global output last year.

The US Mint has announced that purchases of its ‘America the Beautiful’ 5oz silver coin, due for release next week, will be limited. The decision to restrict purchases reflects the physical demand which has taken mints, across the world, by surprise and continues to do so.

There were some upbeat market data releases yesterday, namely China whose reported trade surplus was over $2.5 billion higher than expected, at $18.2 billion. Imports and exports exceeded expectations. Gold benefitted from this news as well as the German industrial-production data which was also better than expected.

This morning we are awaiting the outcome of the Bank of England’s decision as to whether or not they will push more stimulus into the economy. European stocks have fallen from their highest level since 2008 as investors await news. Despite Governor Sir Mervyn King being a firm believer of printing money, the rest of the Committee have so far this year managed to hold him back. General consensus is that this will be the case once again – target bond purchases will remain at £375 billion and interest rates at 0.5%. Whether this is will be the case at June’s meeting is another matter, many believe that this is when we will see further stimulus.

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