SINGAPORE, May 17 (Reuters) - Gold edged up on Friday as stock markets paused after rally, but the metal was still on track for its worst weekly decline in a month as investors cut exposure to bullion, sending holdings in exchange-traded funds to the lowest in four years. FUNDAMENTALS * Spot gold was up 0.17 percent to $1,388.11 an ounce by 0038 GMT, having fallen to a four-week low of $1,369.29 on Thursday as renewed liquidation in gold ETFs and the recent drop below the $1,400-per-ounce level spooked investors. * U.S. gold for June delivery was little changed at $1,386.70. * SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.55 percent to 1041.42 tonnes on Thursday - the lowest in four years. * Premiums for gold bars rallied to all-time highs in Hong Kong and Singapore on Thursday after bullion's steepest drop since its April sell-off fuelled another round of buying that constricted supply. * Gold investment nearly halved in the first quarter as a brighter view of the U.S. economy prompted investors in the West to favour other assets, but Chinese coin and bar demand hit a quarterly record of 109.5 tonnes, the World Gold Council said on Thursday. * Indian gold futures fell 1.5 percent on Thursday, extending losses for a second straight session, to hit their lowest level in nearly a month in line with global markets. * The Shanghai Gold Exchange (SGE) will launch after-hours trading for Fridays on May 31 as part of its efforts to help its members better manage price risks, the bourse said in a statement on Thursday. * For the top stories on metals and other news, click , or MARKET NEWS * The Nikkei share average fell for a second day on Friday as caution over the recent steep rises continued to spur profit-taking, while a pullback in Wall Street soured investor sentiment. * Global equity markets fell on Thursday after a regional president of the Federal Reserve said the U.S. central bank could begin to ease up on its loose monetary policy this summer, leading the dollar to recover against the euro. DATA/EVENTS (GMT) 1355 U.S. TR/U Michigan sentiment index 1400 U.S. Leading indicators PRECIOUS METALS PRICES 0038 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1388.11 2.42 +0.17 -17.10 Spot Silver 22.67 0.01 +0.04 -25.13 Spot Platinum 1479.99 0.99 +0.07 -3.58 Spot Palladium 734.25 -1.75 -0.24 6.11 COMEX GOLD JUN3 1386.70 -0.20 -0.01 -17.25 2478 COMEX SILVER JUL3 22.63 -0.03 -0.13 -25.14 855 Euro/Dollar 1.2884 Dollar/Yen 102.21 COMEX gold and silver contracts show the most active months Source: http://www.reuters.com/article/2013/05/17/markets-precious-idUSL3N0DY04P20130517
WHEN VOLATILITY prevails in the gold market, I love seeing so many different opinions because it promotes critical thinking and healthy markets, writes Frank Holmes, CEO and chief investment officer of US Global Investors.
But because gold is unlike any other commodity, many perspectives can be extreme, such as “goldenfreudes” who take pleasure in gold bugs’ pain.
I continue to persuade readers to take a balanced and thoughtful approach to the yellow metal. With this in mind, here are four facts to remember about gold that should help neutralize those extreme bullish and bearish views.
1. You can’t print more gold
The Federal Reserve continues to print fresh, crisp stacks of US Dollars amounting to $85 billion every month, driving up the balance sheet to almost $3 trillion Dollars. If Ben Bernanke continues churning out Dollars at this rate, by 2016, the balance sheet will more than double to $7 trillion Dollars.
And research has found that the price of gold moves in near-lockstep to each increase in the Fed’s balance sheet.
Even with the incredible two-day drop in gold prices, US Global portfolio manager Ralph Aldis calculated that the correlation between the rise in gold and the US balance sheet is 0.96. Perfect correlations of 1 are extremely rare in markets, but gold and the balance sheet have moved in sync with each other since 1999, before gold‘s bull run began.
2. Gold is viewed as a currency by central bankers
As gold was falling on April 15, Carl Quintanilla from CNBC asked me what I thought about how investors viewed currencies. I feel investors should look at how central banks around the world are viewing their own reserves. Although Cyprus and Italy were possibly forced to sell their gold holdings to pay down debts, take a look at the actions of emerging countries central bankers who are scooping up gold.
The World Gold Council (WGC) reported that in 2012, central banks purchased 535 tons when only a few years ago central banks were net sellers of gold. And it’s important to keep in mind that these central banks love these corrections, as they can purchase gold at cheaper prices.
Russia bought 75 tons, bringing its gold holdings to the seventh largest in the world, with about 1,000 tons. Last year, Brazil, Paraguay and Mexico purchased gold, as did South Korea, the Philippines and Iraq.
Turkey is another country that has been building reserves, though not from purchases. Rather the WGC says its growing gold reserves “reflect the increasing role that gold plays more broadly in the Turkish financial system as these reserves are substantially pledged from commercial banks as part of their required reserves.”
While the tonnage is only a fraction of the overall gold market, it is widely acknowledged that central banks are building their supplies of gold as a means to diversify their holdings away from the US Dollar and the Euro. As a percent of total reserves, many of these emerging countries mentioned above own very little gold. In fact, Pierre Lassonde, chairman of Franco-Nevada, has noted that even if emerging market central banks wanted to increase their gold reserves to 15 percent of total reserves, they’d have to buy 1,000 tons every year for the next 17 years!
3. A lack of love from the Love Trade is affecting fundamentals
Too many people focus on the Fear Trade, which is when investors buy gold coins or a gold ETF out of a fear of the fallout that may result from governments’ rising debt levels and weakening currencies.
The Love Trade, on the other hand, is the buying of gold out of an enduring love for gold. Two emerging countries that make up almost half of gold demand—China and India—have had a long relationship with the precious metal that is intertwined with their culture, religion and economy. With half of the world’s population buying gold for their friends and family, it’s important to put into context what is happening in their countries.
It was announced this week that China‘s income growth slowed in the first quarter of 2013, with urban household disposable income rising only 6.7 percent on a year-over-year basis. This is down from 9.8 percent in the first quarter of 2012, and “the slowest pace since 2001,” says Sinology’s Andy Rothman.
This is very important to gold, as China‘s income growth has been shown to be highly correlated to the price of the precious metal over the past decade.
China‘s weaker GDP also disappointed gold investors, but I believe this is only a temporary setback. It’s only a matter of how fast China will move to stimulate the economy, since this is a key to global growth.
In India, gold consumption has been hurt by both a weak rupee and government taxes on imports. In the first quarter of 2013 alone, gold imports declined 24 percent, according to Mineweb.
4. Corrections happen, but have historically offered buying opportunities
As of mid-April, the gold price on a year-over-year percentage change basis registered a -2.6 standard deviation. While minor corrections in the gold price happen frequently, a move this severe has never occurred before over the previous 2,610 trading days.
With gold‘s standard deviation drastically below the “buy signal” blue band, we consider the yellow metal to be in an extremely oversold position on a 12-month basis. The probability that gold will move higher over the next several months is high.
The World Gold Council’s 1st Quarter Global Gold Demand report was published today.
Today’s AM fix was USD 1,377.00, EUR 1,070.01 and GBP 904.32 per ounce.
Yesterday’s AM fix was USD 1,412.25, EUR 1,094.51 and GBP 926.67 per ounce.
Gold fell $32.70 or -2.29% yesterday to $1,392.70/oz and silver slid to $22.50 and finished – 3.55%.
There are no surprises in the latest World Gold Council Gold Demand Trends report other than the fact that statistics show global demand for gold in Q1 2013 was on the increase before the COMEX raid on April 15th. This is a clear indication that the fundamentals supporting a strong price for gold in the long term remain and also helps to explain why there was such a shortage of gold bars and coins in the weeks after April 15th.
The statistics speak for themselves:
1. Jewellery demand was up 12% year-on-year; China returned a 19% increase on the same period last year, India and Middle East at 15%, and interestingly the US at 6%, its first increase since 2005.
2. Demand for gold bars and coins were up in all markets; 22% year-on-year in China and 52% in India and 43% in the US.
3. Central Banks continued their gold purchasing programme for the seventh consecutive quarter purchasing over 100 tons. The sector accounted for 11% of demand worth $5.7bn with volumes concentrated in emerging markets.
4. Though it was 4% down the previous year, demand in the technology sector once again surpassed 100t for the quarter demand in Q1 2013.
Marcus Grubb, Managing Director of Investments at the World Gold Council commented: “The price drop in April, fuelled by non-physical moves in the market, proved to be the catalyst for a surge of buying that has left many retailers short of stock and refineries introducing waiting lists for deliveries. Putting this into context, sales of bars and coins, jewellery and consumption in the technology sector still make up 81% of the market.
Grubb added: “What these figures show is that even before the events of April, the fundamentals of the gold market remain robust with; growing demand in India and China, central banks consistently adding gold to their reserves and strong buying of investment products such as gold bars and coins.”
Key gold demand and supply statistics for Q1 2013
• First quarter gold demand of 963t was down 13% compared with Q1 2012.
• The value measure of gold demand in Q1 2013 was US$51bn, down 16% on the year before.
• The Q1 2013 average gold price was US$1,632 down 3% on the year before.
• The net outflow from ETFs was 177t in the quarter. That fall pushed the sum of ETF and total bar and coin demand to just below 201t. Total investment demand was 320t in Q1 2013, flat compared with a year ago.
• Demand in the jewellery sector was up 12% to 551t. Jewellery demand in China was 185t while demand in India was 160t.
• Demand in the technology sector once again surpassed 100t for the quarter. Demand in Q1 2013 was 102t, down 4% on the previous year.
• The Q1 2013 total mine production was up 4% on last year at 688t. Recycling fell 4% resulting in a total supply that is 1% higher than a year ago.
• Net central bank purchases totalled 109t, 5% lower than a year ago, making this the ninth consecutive quarter in which central banks have been net purchasers of gold.