Gold Fluctuates, Trades 10% Higher on Month
MarketWatch
Gold futures swung between small losses and gains Tuesday, finding some support as a rosy technical picture enticed more investors to the metal, but pressured by strength in the U.S. dollar.
Gold for April delivery was up $1.10, or 0.1%, to trade at $1,735.50 an ounce on the Comex division of the New York Mercantile Exchange. The metal traded as high as $1,750.60 an ounce.
“We dropped quickly (from there) on the change-around in the euro,” said Jim Steel, a precious metals analyst with HSBC in New York.
The euro turned lower after a string of negative U.S. data.
The dollar turned higher midsession. The ICE dollar index rose to 79.319 from 79.142 in late Monday trading in North America.
U.S. home prices slid 1.3% in November, a third straight drop. A gauge of consumer confidence slipped in January, partly reversing gains in the last two months. Read more on consumer confidence.
Gold had slipped by $1 on Monday on the back of a strengthening dollar.
Gold took “a short breather” Monday, analysts at Commerzbank said in a note to clients.
On the month, gold is looking at gains around 10%, after also ending last year 10% higher.
European Union officials have agreed on a permanent bailout fund and on a fiscal compact but “many details remain unresolved,” Commerzbank analysts said. “The southern countries of the euro zone also seem to have pushed through exemptions allowing them some leeway with the fiscal compact and under certain circumstances to circumvent the rules.”
Pressure continues on Greece, the International Monetary Fund, and private creditors to agree on a restructuring and a new bailout program.
“Even though the situation is now easing slightly and sentiment is improving, the crisis is far from over. This is likely to maintain a high level of demand for gold in particular,” the Commerzbank analysts added.
Technically, gold is also gathering more interest as it moves through some key technical levels such as higher moving averages, said George Gero, a vice president with RBC Wealth Management, in emailed comments on Tuesday.
Other precious-metals futures turned lower, as negative U.S. macroeconomic data contributed to take the wind out of stocks’ sails and, by extension, of other commodities such as oil and metals more closely linked to industrial uses.
Why Are the Chinese Buying Record Quantities of Gold?
This month, the Hong Kong Census and Statistics Department reported that China imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms. Beijing does not release gold trade figures, so for this and other reasons the Hong Kong numbers are considered the best indication of China’s gold imports.
Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010. “The thing that’s caught people’s minds is the massive increase in Chinese buying,” remarked Ross Norman of Sharps Pixley, a London gold brokerage, this month.
So who in China is buying all this gold?
The People’s Bank of China, the central bank, has been hinting that it is purchasing. “No asset is safe now,” said the PBOC’s Zhang Jianhua at the end of last month. “The only choice to hedge risks is to hold hard currency—gold.” He also said it was smart strategy to buy on market dips. Analysts naturally jumped on his comment as proof that China, the world’s fifth-largest holder of the metal, is in the market for more.
There are a few problems with this conclusion. First, the Chinese government rarely benefits others—and hurts itself—by telegraphing its short-term investment strategies.
Second, the central bank has less purchasing power these days. China’s foreign reserves declined in Q4 2011, falling $20.6 billion from Q3. The first quarterly outflow since 1998 was not large, but the trend was troubling. The reserves declined a stunning $92.7 billion in November and December.
Third, the purchase of gold would be especially risky for the central bank, which is already insolvent from a balance sheet point of view. The PBOC needs income-producing assets in order to meet its obligations on the debt incurred to buy foreign exchange, so the holding of gold only complicates its funding operations. This is not to say the bank never buys gold—it obviously does—but there are real constraints on its ability to purchase assets that do not provide current income.
Apart from China’s central bank, there is not much demand from the country’s institutional investors for gold. There are industrial users, of course, but their demand is filled from domestic production—China is the world’s largest gold producer. Most of China’s gold demand from foreign sources, therefore, is from individuals.
So why are individuals now buying gold? The easy answer is that the demand is only seasonal, as Jeff Wright of Global Hunter Securities believes. The Chinese traditionally buy gold presents in the run-up to the Lunar New Year, which started a week ago. Yet gift-giving does not begin to explain the surge in gold purchases that started as far back as July. November was the fifth-consecutive month of China’s record gold purchases from Hong Kong.
A better explanation for the gold-buying binge of Chinese citizens is that they are using the shiny commodity as an inflation hedge, as the Financial Times recently suggested. Yet the buying of gold has increased while inflation has eased. And that means there must be another explanation. The best explanation is that individuals in China are using gold as a substitute for capital flight.
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Gold Edges Up, Heads for Biggest Monthly Gain Since August
The Business Standard
Gold ticked up on Tuesday after the euro rebounded, while bullion prices headed for their biggest monthly rise since August as lingering concerns about growth in the United States prompted buying from investors.
Gold jumped nearly 5% last week, its fourth consecutive weekly gain, after the US Federal Reserve pledged to keep interest rates near zero until at least late 2014, which could put pressure on the dollar.
Gold added $7.45 an ounce to $1,736.09 an ounce by 0656 GMT, having hit a low around $1,716 on Monday.
"Although charts look exhausted, US dollar weakness and recent Fed activity seems to be giving fundamental boost for gold to stay above $1,710," said Pradeep Unni, senior analyst at Richcomm Global Services.
"Steady prices have triggered buying interest."
A top US Federal Reserve official on Monday said he would have preferred a more optimistic statement on the US economy, after the central bank last week painted a grim picture of the recovery and forecast ultra-low interest rates until late 2014, considerably later than investors had expected.
Gold, which struck a record at $1,920.30 last September, was headed for an 11% rise this month, highest since a 12% gain in August 2011.
"Sentiment seems to have improved quite tremendously, I would say. We are now into more bullish territory, more than ever, with the Fed providing enough fundamental support," said Dominic Schnider, head of commodity research at UBS Wealth Management.
"I think we have good reasons to believe we are going to test $1,805 in the coming day. The Fed was clearly the most important event," said Schnider.
Gold has gained for the last four consecutive weeks, with a spike in prices before the Lunar New Year holidays being driven partly by Chinese buying.
"Before the Chinese New Year really started, we've seen quite strong gold exports from Hong Kong to China. Apparently Chinese demand was very solid," said Schnider.
US February gold rose $5.60 to $1,736.60 an ounce.
Silver Powering 20 Million Homes as Glut Subsides
Bloomberg BusinessWeek
Record industrial demand for silver and resurging investor interest is diminishing a supply surplus, driving the metal used in everything from solar panels to batteries into its best start to a year in almost three decades.
Manufacturers will use 15,415 metric tons, 2.5 percent more than in 2011 and reducing the glut by 41 percent to 3,297 tons, Barclays Capital estimates. Investors may buy 2,000 tons through exchange-traded products, after selling 1,300 tons last year, Morgan Stanley predicts. Prices will average $37.50 an ounce in the fourth quarter, 12 percent more than now, the median estimate in a Bloomberg survey of 13 analysts shows.
The metal rallied 24 percent since closing at an 11-month low in December, entering a bull market on mounting confidence that another global recession will be avoided even as the World Bank and International Monetary Fund cut their growth forecasts. Prices had plunged 44 percent in eight months, making it the most volatile of any metal tracked by Bloomberg, as expansion slowed from Europe to China, crimping demand for commodities.
“Silver got hammered and now we’re into a phase where it will do quite well,” said Dan Smith, an analyst at Standard Chartered Plc in London, and the second-most accurate price forecaster tracked by Bloomberg Rankings in the past eight quarters. “Appeal comes from its widespread use in both industry and investment. I think it’s relatively cheap.”
Standard & Poor’s
The commodity advanced 21 percent since Dec. 31 to $33.6225, the best start to a year since 1983. The Standard & Poor’s GSCI Total Return Index of 24 commodities rose 2.9 percent and the MSCI All-Country World Index of equities 5.6 percent. Treasuries lost 0.3 percent, a Bank of America Corp. index shows.
This year’s anticipated gains in silver will mean record profit for Coeur d’Alene Mines Corp. and Fresnillo Plc, analyst estimates compiled by Bloomberg show.
Economies may still pose the biggest threat to the rally. The IMF cut its 2012 forecast on Jan. 24 to 3.3 percent from 4 percent and warned that Europe’s debt crisis threatened to derail the world economy. The World Bank reduced its estimate by the most in three years on Jan. 18, to 2.5 percent from 3.6 percent. Global industrial production will expand 2.3 percent, from 4.9 percent in 2011, Macquarie Group Ltd. predicts.
The 0.5 percent contraction in the 17-nation euro region seen by the IMF may curb demand for imported goods. Chinese exports rose 13.4 percent in December from a year earlier, the slowest pace since February, according to customs data. The nation imported 235 tons of silver in December, 36 percent less than the average over the past two years, the data show.
Industrial Demand
“In the face of weak industrial demand, the short-term investment argument is not entirely convincing,” said David Jollie, an analyst at Mitsui & Co. Precious Metals Inc. in London and the most accurate forecaster in the London Bullion Market Association’s 2011 price survey. “It’s much more difficult to get people to invest for the long term in times of economic uncertainty.”
For now, speculators are getting more bullish. Hedge funds and other money managers more than doubled wagers on higher prices this year, Commodity Futures Trading Commission data show. They held 16,034 futures and options in the week ended Jan. 24, the most since mid-September. The most widely held option gives the owners the right to buy silver at $40 by June, data from the Comex in New York show. The three biggest holdings are all call options at 20 percent or more above prices today.
Gold Edges Higher as Dollar Slips
MarketWatch
Gold clawed back a bit of lost ground early Tuesday as the U.S. dollar eased and profit-taking subsided.
Midday Tuesday in East Asia, gold for April delivery was trading up 0.2%, or $4, at $1,738.40 an ounce, rising from its Monday settlement of $1,734.40 an ounce on the Comex division of the New York Mercantile Exchange.
Monday had seen the benchmark Comex gold contract slip by $1 on the back of a strengthening dollar.
But the dollar lost ground during Asian morning trade, with the ICE dollar index slipping to 78.878 from its 79.142 level late Monday in North America.
Commodity researchers at Commerzbank pegged Monday’s losses to investors locking in recent gains following gold’s seven-week high at the end of last week.
They added that there was still “a risk of more profit-taking from ... if market sentiment deteriorates,” with risks including weak demand from major gold importer India.
Among other precious-metals futures, Comex March silver contracts followed gold higher, rising 9 cents, or 0.3%, to $33.62 an ounce.
April platinum rose 0.5% to $1,624.90 an ounce, while March palladium added 0.4% to $691.00 an ounce.
March copper was little changed, however, holding at the $3.83-per-pound level from its New York settlement after falling 1.6%, or 6 cents, on Monday.
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China Gold Sales up 57.6% During First Week of Dragon Year
Gold sales in China especially jewelry items scaled new highs after the first week of sales in the ongoing Dragon year.
According to China's Commerce Ministry data, gold,silver jewelry sales rose 57.6 percent in the first week at Caibai, one of Beijing's leading gold retailer.
Steady increase in jewelry sales were reported from all across China with customers favoring New Year-themed gold bars, gold ingots and other types of Dragon-themed jewelries.
During the New Year, most Chinese prefer to buy to preserve or to present as gifts on hopes that it will increase in value and not to be impacted by inflation which is climbing up in the nation.
This year's best-selling precious metals products for the Chinese New Year have two characteristics: one is the theme of dragon, and the other is rich cultural content and exquisite traditional craftsmanship.
The Dragon Year Gold Bar that was put on the market in late November is a star product whose demands exceed supply, with thousands having been pre-ordered one year in advance.
The Dragon Year Gold Bar has been issued for years in succession, and it is still greatly sought after in the market this year.
This time, China Gold Coin Incorporation (CGCI) issued the Dragon Year Gold Bar in five sizes, namely 1,000 grams, 500 grams, 200 grams, 100 grams, and 50 grams, each issuing 350, 1,000, 1,500, 16,000, and 24,600 pieces respectively, with a purity of 99.99 percent and a total issuing weight of 3,980 kg.
The Chinese New Year is one of the largest celebrations and lots of gold is bought as presents during the time, analysts said.
Observers said value of gold sale in China during the New Year gold is likely to go up by 70 percent compared with previous year's 61 percent.
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