Gold gathers support from China & Japanese Markets
Comex Gold Prices have been seen rebounding from a 4 day decline where Gold Prices touched lowest levels in over four months, on signs of increased Gold Demand from China and also as the US Dollar weakened. Gold and Silver seem to have entered a period of higher volatility as the shine of the temporary US Fiscal Cliff agreement by US lawmakers which pushed Gold to rally to nearly $1,700, quickly faded after the FOMC minutes showed that the QE – Quantitative Easing programs may soon be withdrawn. Gold Bullion Prices slumped to $1,625.85 on Jan. 4, the weakest since Aug. 21, after minutes from the US Federal Reserve indicated that policy makers may end the bank’s bond-buying program this year, boosting the Dollar Index to a six-week high. This also makes it clear that there will be no fresh QE which tends to support higher Gold Prices. The sharp drop in Gold Prices has attracted opportune purchases, evidenced by the rising volumes in China. Trading Volumes for cash Gold Bullion of 99.99% purity on the Shanghai Gold Exchange surged to 19,504.8 kilograms yesterday, according to a statement on the bourse’s website. That’s the highest ever for the benchmark contract, according to data tracked by Bloomberg. Whether this rebound can be sustained depends on the emergence of physical buyers, especially from China and India, the world’s biggest two buyers, at a time when Gold Demand is meant to be strong. In China, Gold Demand typically picks up before Christmas and lasts through the Lunar New Year in February. India’s wedding season, a peak-consumption period for Gold Jewelry, runs from November to December and from late March through early May.
China Gold Sales Rise 27%:
China National Gold Group Corp., the country’s largest Gold producer, said Monday that its sales reached 100.6 billion Yuan (16 billion US Dollars) in 2012, up 27.1% from 2011. The company’s total assets hit a record-high 65 billion yuan by the end of 2012, up 11.5 billion Yuan from a year earlier, the report said. By the end of 2012, the company’s Gold Reserves reached 1,758 tonnes, up 374 tonnes from the previous year, while its copper, molybdenum and Silver Reserves hit 10.97 million, 2.07 million and 10,000 tonnes, respectively, according to the xinhuanet report. China, the world’s largest producer of Gold has not exported any Gold, rather has been an importer. It is widely believed that China is increasing its central-bank purchases of Gold Bullion, though China has not released any data on its official holdings since reporting them at 1,054.1 metric tons in 2009.
Japan to Double Gold Holdings:
Gold held in Japanese currency seems the most attractive investment as of now. Gold in Japan’s currency reached a record 147,780 yen an ounce on Jan. 2, after climbing 21% last year. Gold in US Dollars reached a record $1,921.15 an ounce on Sept. 6, 2011 and gained 7% in 2012. Gold Bullion’s role as an Inflation hedge, long ignored by Japanese fund operators, has come under the spotlight thanks to Abe’s economic policy. Japanese pension funds, the world’s second-largest pool of retirement assets after the US, will more than double their Gold Holdings in the next two years as the government seeks to target inflation to bolster economic growth, according to an adviser to the funds. Assets held by Japanese pension funds in Gold ETP – Exchange-traded products may expand to 100 billion yen ($1.1 billion) by 2015 from less than 45 billion yen at present, said Itsuo Toshima, who represented the Tokyo office of World Gold Council for 23 years through 2011. New Prime Minister Shinzo Abe’s pledge to spur inflation to 2% and end the yen’s appreciation means Japanese pension funds now have to hedge against rising prices and a currency declines after two decades of stagnation. They’re set to jump into Gold after 12 straight years of gains with the precious metal now 14% below its all-time high reached 2011. Gold priced in yen reached a record a week ago. Local pension funds last year for the first time allocated 2.1 billion yen, or 2 to 3% of their assets, in the Gold ETF of Mitsubishi UFJ Trust. Global investors are holding a near-record amount in Gold backed ETPs that are valued at $139.6 billion, data compiled by Bloomberg show. Markets have a fear of both US Dollar-denominated assets and Euro-denominated assets, and they are rotating out of those in a thoughtful, judicious manner.
US Debt Ceiling & Eurozone Crisis to lend support to Gold:
Failure to find a solution to the US Debt Ceiling debate and matters in Europe will result in a “major world economic crisis,” International Monetary Fund Managing Director Christine Lagarde said. Without a resolution, there will be a crisis “due to the size of the economies of these two and their relationship with other countries in terms of trade and investment, she said. While the U.S. Congress approved a deal to avoid tax hikes on most Americans in the so-called Fiscal Cliff, policy makers need to agree on raising the $16.4 trillion Debt Ceiling, which it reached on Dec. 31, according to the Treasury Department. Extraordinary measures the agency is taking will be exhausted as early as mid-February. In Europe, growth has weakened as a crisis over debt levels among some member nations continued into a third year. The U.S. and European issues will affect developing countries including African nations, which also face risks from rising food prices, Lagarde said. Federal Reserve Bank of Philadelphia President Charles Plosser said the last recession was a shock that seems to have permanently reduced the potential long-term growth of U.S. Gross Domestic Product. “It certainly looks like we have had a permanent shock,” Plosser said to economists. Plosser didn’t comment on the current sate of the US Economy or Monetary Policy at the American Economic Association’s annual meeting. It is clear that the Debt Ceiling issue will lead to a Credit Rating cut for the U which in turn will push investors towards Gold and Silver. Gold traders and analysts still believe that demand to buy Gold as a hedge against currency devaluation remains strong among investors and asset managers. Many Gold Market analysts are of the view that market reaction to the release of Federal Open Market Committee minutes last week may have been overdone & they see little scope for the Fed to shift away from QE3. It is generally assumed that Gold may well remain underpinned & Gold Prices will remain supported in the medium to longer term by Currency Debasement fears and central-bank Gold buying. Central banks are still net buyers also and will emerge on dips and we are still yet to see any widespread Gold ETF liquidation, with the community still proving to be decent buyers on dips. Though central-bank buying does not automatically mean higher Gold Prices, it certainly puts a floor under the Gold Prices to some degree.
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