The Daily Nugget: Gold Flow To East Increases

The dollar index’s longest slide in seven weeks saw the price of gold climb yesterday towards $1300. The spot gold price is now up for the second consecutive session.

It seems the latest comments from Fed officials have only added to the lack of clarity surrounding QE tapering. Yesterday Cleveland Fed President Sandra Pianalto jumped on the bandwagon of confusing markets and said tapering would commence if job data kept on improving. Nothing new but still caused some concern.

This uncertainty has driven investors to buy gold again. We are clearly going to see this type of knee-jerk reaction for a while surrounding the issue of tapering.

Concerns over jobless claims in the US may well see gold climb further today. The US Department for Labour will release the weekly data on initial jobless claims. If claims have increased then some may read it as a sign that QE will not be tapered as soon rumours suggest.
Tapering will have limited impact on gold price

Speaking of tapering, HSBC said yesterday that they expect its impact on gold to be ‘negative but limited’. Given the role of ‘unconventional monetary policies’ on gold’s rise in recent years, they see it as ‘logical’ that the tapering of QE would affect gold buying. However, they do not expect to see a ‘freefall’ in the gold price if and when tapering does occur as it is currently being taken into account. They point to physical gold demand which is ‘filling some of the slack left by institutional investors’ in the wake of the gold price drop.

Increasing numbers of analysts believe this correction is here to stay, for at least the medium term. Following July’s climb of 7.5%, the most since January 2011, we may well see gold prices struggle to regain momentum in the coming months. Louise Yamada believes we will see gold return to the 34-month high of $1,179 seen at the end of June.

Flow of gold bullion to the East increases

Yesterday we discussed the recent gold controls in India and how they were turning individuals to criminal activity. Figures just released by the Bombay Bullion Association show gold seized in the second quarter was worth around Rs598 million, more than estimates of narcotics seizures in the same period. But they estimate the authorities only catch 5-10% of the smuggled gold. Much of the gold comes from Singapore, Dubai and Bangkok but there has been an upsurge in cross border smuggling from both Nepal and Bangladesh.

Since the spot gold price has fallen below $1,300 there has been a pickup in gold demand in Asia, according to the Standard Bank Gold Physical Flow Index the flow of gold has increased since the beginning of the week.

HSBC, following the great minds of those in gold investment, believe that China’s demand for gold bullion is will remain elevated as the price remains below or around $1,300.