Gold Demand Increases 36% as Investors Increase Allocations to Bullion

Gold

US and German government bonds, gold and particularly silver rose in safe haven buying yesterday on growing concerns about the robustness of the US recovery. The two precious metals traded flat in Asian and early European trade but have moved up again this morning as the dollar has weakened. Risk aversion has returned due to the very poor housing data yesterday which suggests a double dip recession is increasingly possible. These concerns are not being helped by renewed jitters in sovereign debt markets on Ireland’s downgrade with government bond spreads widening again and the spread between Ireland’s and Germany’s debt at new records.

Gold is currently trading at $1,236.58/oz, €976.77/oz, £801.88/oz.

Cross Currency Rates at 1030 GMT

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Gold is up sharply in US dollars, Hong Kong dollars and yen as there is talk of the Japanese government intervening in currency markets to weaken the yen. Gold is up slightly against the euro and sterling and flat against the Swiss franc.

Confirmation of continuing safe haven demand for gold was given by the World Gold Council who reported that gold  demand rose 36 percent in the second quarter as investors increased allocations to gold through bullion and ETF purchases during the sovereign debt crisis. Global demand rose to 1,050.3 metric tons from 769.6 tons a year earlier with investors purchased 291.3 metric tons of gold in exchange-traded funds, or ETFs, the second-highest quarter on record, and central banks were net buyers for a fifth straight period.

While imports of gold into India fell 5.6% in the second quarter (versus Q209), gold demand in the world’s biggest gold importer almost doubled to 365 metric tonnes in the first half from a year earlier.

Silver

Silver has rallied sharply in all currencies (see Cross Currency Rate table) as investors are seeing silver as a proxy for gold but see that it is undervalued versus gold and likely to play catch up. Especially given the fact that the supply demand fundamentals in the silver market are even more favorable than those in the gold market.

Silver – 5 Year (Daily)

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Silver is currently trading at $18.57/oz, €14.63/oz and £12.01/oz.

Platinum Group Metals

Platinum is trading at $1,517.50/oz, palladium is at $486/oz and rhodium is at $2,050/oz.

Mark OByrne

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