Gold
"Supported by Physical Buying" as Chinese Demand
Forecast to Double by 2020 By Adrian
Ash, BullionVault - Posted Monday, 29 March 2010
London
Gold Market Report
THE PRICE OF WHOLESALE gold bullion ticked
higher against the US Dollar on Monday morning, rising together
with the Euro and most world stock markets after "Chinese
buying emerged" according to one Hong Kong dealer.
"The downside on gold prices is limited,"
said another – Fortis Nederland's head of commodity derivatives,
Wallace Ng – to Bloomberg.
"I don't see gold trading below $1100
an ounce for now."
China's economic growth over the last 3 months
likely hit 12% per year, according to two senior Beijing economists
separately quoted by the Chinese press today.
Yu Bin at the State Council Development Research
Center and Fan Jianping, senior economist at the State Information
Center, both now forecast a dip in GDP growth as the central
bank looks to curb inflation and debt.
Longer-term, "Gold consumption in China
will continue to catch up with the rest of the world...and
has the potential to double during the next decade,"
reckons former Credit Suisse analyst Eily Ong, now investment
research manager at the mining-backed World Gold Council,
in a new report.
"China has recently provided strong support
for global gold demand during a period of weakness in other
parts of the world. The combination of a healthy outlook for
demand and relatively inelastic supply in China may be seen
as perfect conditions for gold."
Rising 85% by weight since 2004, annual gold
demand from Chinese households has more than quadrupled in
Dollar terms.
Based on World Bank estimates of China's household
savings rate – probably worth some $660bn last year – the
proportion of private savings spent on gold investment and
jewelry each year has almost doubled since the market was
deregulated in 2001, says analysis by BullionVault, reaching
2.1% in 2009.
"The real value of gold for investors
lies in the reliable diversification it provides and its low
correlation with other assets," says Ong.
"Gold also consistently delivers a lower
average volatility than most mainstream assets and commodities."
Silver prices also rose to a 6-session high
against the Dollar on Monday morning in London, rising to
$17.27 an ounce to add almost 3.0% from last Wednesday's low.
Over on the currency markets, meantime, the
Euro and British Pound slipped back vs. the Dollar, ticking
lower from 4-day highs at $1.35 and $1.50 respectively.
That buoyed the gold price north of €824 and
£741 per ounce.
New Eurozone data today showed economic, consumer
and industrial confidence all improving across the 16-nation
currency union in March, but remaining depressed.
Here in the UK, non-financial businesses repaid
almost £2 billion of their outstanding debt last month, the
Bank of England reported, taking their outstanding debt to
a 17-month low.
"Evidence of QE's effectiveness remains
somewhat elusive," notes Richard McGuire, fixed income
strategist at RBC Capital Markets.
Over the 12 months since the Bank of England's
£200bn quantitative easing program began, borrowing by UK
businesses outside the financial sector has fallen by £16.5bn,
a drop equal to some 1.2% of gross domestic product.
"Physical demand for gold has supported
the metal despite substantial Dollar strength," notes
this morning's Commodities Daily from Standard Bank's London
office.
Over on New York's Comex derivatives market,
in contrast, bullish speculation by non-industry players continued
to fall last week, new data showed after Friday's close.
Net speculative length – meaning the number
of bullish minus bearish bets held by large and small speculative
traders – fell below 750 tonnes equivalent for only the second
time since Sept. '09.
As a proportion of all open gold futures and
options contracts, the net long position held by hedge funds
and other large speculators fell to 11-month low beneath 30%.
Analyzing the latest US derivatives data for
gold, silver, platinum and palladium, "[It] seems to
indicate that gold is still the least vulnerable to a sharp
correction," says Standard Bank.
Adrian Ash
Formerly City correspondent for The Daily
Reckoning in London and head of editorial at the UK's leading
financial advisory for private investors, Adrian Ash is the
editor of Gold News and head of research at BullionVault –
winner of the Queen's Award for Enterprise Innovation, 2009
– where you can buy gold today vaulted in Zurich on $3 spreads
and 0.8% dealing fees.
(c) BullionVault 2010
Please Note: This article is to inform your
thinking, not lead it. Only you can decide the best place
for your money, and any decision you make will put your money
at risk. Information or data included here may have already
been overtaken by events – and must be verified elsewhere
– should you choose to act on it.