Daily Market Update

Global Gold Demand Steady Despite Indian Repression; Stealth PBOC Buying Not Factored In

Today’s AM fix was USD 1,291.50, EUR 943.46 and GBP 767.56 per ounce.
Yesterday’s AM fix was USD 1,301.00, EUR 948.67 and GBP 773.85 per ounce.

Gold climbed $0.50 or 0.04% yesterday to $1,293.60/oz. Silver rose $0.03 or 0.15% to $19.39/oz.

Gold prices are marginally lower today as market participants digest yesterday’s European central bank gold agreement and the World Gold Council’s report on global gold supply and demand.

Gold in USD – Daily, 5 Year (Thomson Reuters)

Investors weighed uncertainty surrounding developments in Ukraine as pro-Russian separatists and Ukrainian forces in the eastern reaches of the country continued to clash yesterday, resulting in the death of one Ukrainian soldier. Ukraine will hold elections on May 25 and concerns persist of a civil war.

Another geopolitical flashpoint are the rising tensions between the U.S. and China. The superpowers are clashing over territorial disputes and yesterday the U.S. indicted five Chinese military officials for stealing trade secrets. 

China has responded by suspending its involvement in a cyber security working group and threatened further retaliation. The indictment is a “serious violation of the basic norms of international relations and damaged China-U.S. cooperation and mutual trust,” Foreign Ministry spokesman Qin Gang said in a statement.

Russia’s President Vladimir Putin has arrived in Shanghai ahead of a summit at which Russia and China are hoping to deepen ties including a $60 billion gas deal. This would likely see China pay for Russian gas in yuan thereby delivering another blow to the dollar as a global reserve currency as currency wars intensify.

The two countries will make a "substantial" announcement and sign agreements, said state Chinese media Xinhua. They will also kick off a joint military exercise involving their navies.

Global Gold Demand (Official) Steady At 1,074 Tonnes In Q1, 2014
After the record year for gold demand that was 2013, gold demand made a robust start to 2014 – virtually unchanged year-on-year at 1,074.5 tonnes according to the World Gold Council data.

World Gold Council – Gold Demand Trends First Quarter 2014

Global demand fell to 1,074.5 metric tons in the quarter, from 1,077.2 tons a year earlier.

Jewellery demand gained moderately, largely due to the environment of lower gold prices compared with Q1 2013 and seasonal factors in many markets including Chinese New Year and Valentines Day.
The gain in jewelry usage represented the strongest start to a year since 2005 with buying up about 10% in China, the world’s biggest gold buyer.

Divergence was seen within the investment sector. The source of supply that was ETF liquidations came to an end as ETFs flows were zero, compared with 177 tonnes of outflows in Q1 2013.

Store of value, bullion coin and bar demand unsurprisingly fell below the record Q1 levels of demand seen a year ago.

World Gold Council – Gold Demand Trends First Quarter 2014

Central bank demand fell marginally but remained robust as central banks continued to purchase gold for its diversification and risk management properties .

Thus, jewelry purchases primarily from store of value buyers in Asia countered declines  from record levels in investment, store of value and central-bank buying.

Much of the decline in coin and bar demand was due to the plunge in Indian demand due to import duties and restrictions. This shows how the figures may not capture the full level of global gold demand due to the huge wave of gold smuggling into India in recent months.

Another important caveat to the figures is the ‘elephant in the room’ that is demand from the People’s Bank of China (PBOC).

The PBOC does not declare their monetary gold purchases to the IMF or release the data. However, most market participants accept that they have and are quietly buying significant amounts of gold as part of their foreign exchange diversification programme and as part of their strategic goal to position the yuan as a rival reserve currency ( see Currency Wars: Bye, Bye Petrodollar – Buy, Buy Gold).

The World Gold Council report and the important context of gold smuggling in India and elsewhere and undeclared central bank demand shows that the supply demand fundamentals of the gold market remain robust. They should both support gold at these prices and lead to higher prices in the coming months after gold’s multi month period of correction and consolidation.

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Mark O'Byrne
Executive Director


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