Surge in Retail Gold Demand “Outweighed by ETF Selling” as Far East Premiums Hit New Highs

London Gold Market Report
from Adrian Ash, BullionVault
Thurs 16 May, 08:10 EST

Surge in Retail Gold Demand “Outweighed by ETF Selling” as Far East Premiums Hit New Highs

GLOBAL GOLD prices fell further at the start of London trade on Thursday, hitting new 1-month lows beneath $1370 per ounce but leaving gold bars traded in East Asia at record-high premiums.

“[Western] investors appear to be tired of gold as a safe haven,” says Mitsubishi analyst Jonathan Butler, quoted by Reuters, because “they anticipate the end of loose monetary policies, possibly by the end of this year or maybe early next year.”

With US consumer price inflation data due just before today’s Wall Street opening, five members of the US Federal Reserve were scheduled to make separate speeches at various events later on Thursday.

Four of them are voting members on the Fed’s policy-setting committee.

“There also seems to be a return of risk appetite” amongst Western money managers, says Mitsubishi’s Butler.

European stock markets today held flat after rising 12% in the last month.

The gold price in US Dollars extended Wednesday’s drop to fall briefly beneath a one-month low of $1370 per ounce – a level first hit in October 2010.

Gold priced in Sterling fell closer to £900 per ounce, a level seen on only 4 trading days since May 2011.

“New highs in the US equity markets and plummeting bond yields,” says Edward Meir at INTL FC Stone, “particularly in Europe, spurred the exodus away from gold and into financial assets on Wednesday.

The silver price, “which has been looking particularly poorly on the charts lately,” says Meir, “is now within striking distance of its mid-April lows of $22 an ounce” – the lowest level since Oct. 2010.

“Rampant equity markets continue to attract investor funds away from gold,” agrees a note from Japanese trading house Mitsui’s New York team.

“The yellow metal looks to be heading for another look towards last month’s lows beneath $1350.”

In contrast to Western money managers, Chinese investors “[have been] discouraged by the weak domestic stock market,” says the latest Gold Demand Trends from market-development group the World Gold Council, “[and so] increasingly relied on gold to fulfil their investment needs.”

Analyzing global data from the first 3 months of this year (which included the Chinese Lunar New Year holidays), the World Gold Council says China’s total gold demand again outpaced demand from India – still the world’s #1 in 2012 – by rising 20% from the same period in 2012 to a new quarterly record of 294 tonnes.

Indian demand rose 27% to 256 tonnes. So-called “retail” demand worldwide – meaning jewelry, small gold bars and coin – rose 11.5% by weight compared to Jan-Mar. 2012, with US gold jewelry sales rising 6%.

That was the first rise in US gold jewelry demand year-on-year since autumn 2005.

Opposing the rise in retail gold demand, says the World Gold Council, “[was] a well-documented decline in gold E.T.F. holdings…which outweighed the [global] growth in bar and coin demand.”

In total, exchange-traded gold trust funds shed more than 175 tonnes during the first quarter.
The giant New York-listed SPDR Gold Trust (ticker: GLD) has shed a further 175 tonnes in the 6 weeks since, losing metal again on Wednesday to reach its smallest holdings since March 2009.

New regulatory filings for March 31st yesterday showed speculator George Soros’s flagship hedge fund cut its position in the GLD by a further 12% during the first quarter.

Paulson & Co., the largest single investor in the GLD, maintained its position in the trust, which now holds 1047 tonnes of large gold bars in HSBC’s specialist bank vault in East London.

Meantime in Asia, “Japan is clearly back from stagnation,” reckons Citigroup economist Naoki Iizuka in Tokyo, commenting to Bloomberg today on new data showing a surprise 3.5% annualized rise in GDP during the first quarter.

The Japanese stock market took a pause Thursday from hitting new 5-year highs.

Premiums for 1 kilogram gold bars in Hong Kong and Singapore meantime rose to newly unprecedented levels above the bullion market’s benchmark London price, according to private reports.

The excess demanded above 400-ounce London wholesale prices for kilobars (31 ounces) of 0.9999 fineness today reached $5 per ounce, up from last week’s strong $3 level as demand held firm.

Adrian Ash