Commodity Trade Mantra

Gold Global Demand falls 5%. Gold’s increasing negative correlation with US Dollar.

Gold Demand

Gold Global Demand falls 5%

Global demand for Gold fell 5% in the first quarter to 1,097.6 tones in the first three months of 2012 from 1150.7 tons in the same period last year, according to the World Gold Council (WGC), driven by a decline in jewelry and central bank buying.

India & China accounted for 54% of global gold demand in the first quarter of 2012. Gold Demand falls 19% in India but up 10% in China.

India, the world’s largest gold consumer, also saw a big drop in investment and jewelry demand. In the first quarter, investment demand plunged 46% from the previous year to 55.6 tones, while jewelry demand fell 19% to 152 tones. “Gold demand in India was affected by a number of factors; a new tax on gold jewelry, two increases in the import duty for gold and weakness and volatility in the rupee,” WGC said. While the government withdrew the new tax on jewelry in May, the weakening Indian rupee will continue to keep Gold demand under pressure.

In contrast, China’s gold demand hit a record high in the first quarter on investor worries over inflation, property market curbs & also boosted by the Lunar New Year holidays, which are traditionally a strong period for gold purchases. “Jewelry demand in China increased significantly, accounting for 30% of global jewelry demand, making China the largest jewelry market for the third consecutive quarter,” WGC said. China remained the world’s top gold consumer for the second quarter in a row, with its gold consumer demand up 10% to 255.2 tonnes, beating India’s 207.6 tonnes, which was a 29% decline on the year. China’s physical gold bars and coins demand rose 13% on the year to a quarterly record of 98.6 tonnes, while jewelry demand climbed 8% to 156.6 tonnes and accounted for 30% of the world’s gold jewelry market.

The official sector remained a net gold purchaser in the first quarter, although the volume at 80.8 tonnes showed a 41% decline from the first quarter of 2011 which witnessed an exceptional level of central bank buying, said the WGC. Russia, Mexico, Kazakhstan, the Philippines, Belarus, Ukraine and Tajikstan all added to their official gold reserves in the quarter. World Gold Council however said Gold demand value showed a 16% increase year on year to an estimated $59.7 billion. Mexico’s central bank made the largest single purchase of 16.8t. The main driver for this demand by emerging market central banks is the need to diversify their holdings. First quarter demand for ETFs and similar products totalled 51.4t, equivalent to a value of US$2.8 billion; in stark contrast to the first quarter of 2011, when the sector witnessed net outflows.

“The market is effectively trying to price in a disorderly exit for Greece. “Greece’s failure to form a government prompted investors to cut their exposure to the precious metal, which is now behaving like other risk assets.

An important long-term technical damage for Gold prices & the continued Gold Bull Run is on the verge of being inflicted.

Gold prices dipped yesterday to $1526.7 & have breached the strong technical support of $1,540 in Intraday Trade & closed at $1536.6. Gold should ideally bounce up from dips below this level. A repeat close below $1540 may send Gold sharply down to $1270 levels also.

Silver has a strong technical support at $26.20 on the downside. Any breach with a sustained momentum on closing basis below this range may signal a strong bearish trend for Silver & may decline further to $22.60.

Gold’s negative correlation with the U.S.$ is increasing. Last year it was close to zero & at the moment it’s approaching negative 0.7, so each time the U.S.$ rises, gold will continue to fall. But sharp reversals in the US$ may trigger equally massive rises in Gold also. The markets are now very highly short on the euro & the currency seems oversold by any technical measure. Some short-covering could send the euro temporarily higher as net shorts in the currency are at three-month highs. The Euro may find bottom fishing support as it is in a very strong support range of 1.2700 to 1.2610. There can surely be strong & sharp rises for the Euro from here on. The Indian currency could bounce up to an extent but may remain weak overall due to the current national fundamentals. The U.S.$ may also witness an extremely Massive downfall, contradictory to the extraordinary rises seen in the last few months.

Greece Update: German officials have started briefing that the groundwork has been done, and that a “Grexit” is now a manageable event. The German newspapers are suddenly full of briefings from senior government officials that everything is under control. But Germany and the rest of the EU could yet devise a workable plan & there can be a mega-bailout. Very little of the earlier bailout money so far has gone to the Greeks. It has all gone to the bankers. A 23 billion euro package (the equivalent of 10% of Greece’s shrunken GDP) to reflate the economy would buy Greece some time.

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