Gold "Lacks Direction" As Private Investors Buy, Indian Consumers Switch To Silver

November 5, 2013

LONDON wholesale gold was unchanged Tuesday lunchtime from yesterday or from last week's finish at $1317 per ounce, as European shares again defied a drop in Asian stock markets to tick higher.

Major government bond prices edged back, and commodities rallied from multi-month lows.

Silver today bounced from a near 3-week low at $21.58 per ounce, more than 6.5% below last Wednesday's 6-week high.

The British Pound meantime rose to 1-week highs after the European Commission sharply revised its 2014 and 2015 growth forecasts for the UK higher.

That pushed Sterling gold below £820 for the first time since October 22nd. 

"Yesterday was one of the quietest days I can remember for a while," said Marex Spectron's David Govett in a note Tuesday morning, "with tiny volumes and very narrow ranges."

"Trading volume was very light," agrees brokerage INTL FCStone, adding that turnover in Comex gold futures was barely half its 1-month average, "among the weakest daily turnover" of 2013 to date.

Open interest in US gold futures held flat on Monday, with the total number of contacts now live ending the day virtually unchanged from Friday below 389,000.

The quantity of gold needed to back shares in the giant SPDR Gold Trust, the world's biggest exchange-traded gold fund, was also unchanged Monday at a 57-month low of 866 tonnes.

Gold bullishness amongst private investors, in contrast, rose last month to the highest level since April reports the UK's Daily Telegraph, citing the latest Gold Investor Index from Bullionvault, "the world's largest online market for buying physical bullion."

But amongst Indian consumers, the world's heaviest gold buyers, "Sales picked uponly a couple of days before Diwali," says the Bombay Bullion Association's Harmesh Arora, commenting on last weekend's festival of lights – typically the biggest season for Indian household gold demand.

"It was nowhere enough to match up with last year's level."

Thanks to the Indian government's anti-gold import rules, "This time there were no stocks available," says All India Gem & Jewellery Trade Federation chairman Haresh Soni, also speaking to the Wall Street Journal.

"There was also spending tightness due to overall liquidity crunch."

"This Diwali was a disaster," the paper quotes one senior jewelry chainstore manager, claiming that pre-festive sales were 50% down on 2012.

"I have never seen such bad festival sales in 20 years," says the director, Rajiv Popley.

But while "there is less gold available...rural people will gradually move to silver," says Rajesh Khosla, managing director at the part-state owned refiner MMTC-Pamp – recently approved for production of Good Delivery wholesale silver by the London Bullion Market Association.

Demand to buy silver in India has already doubled in 2013 from full-year 2012, Reuters notes today.

The world's No.1 end-consumer of silver, as well as of gold, India could be set for a new annual record says a report from Japanese trading house Mitsui, overtaking the previous record of 2008 when India accounted for more than 15% of the world market.

Over in neighboring Dubai, "Jewellery demand has been especially strong," reports French investment bank and London bullion market-maker Societe Generale, "as it has benefitted from the tourist trade, with the increasing restrictions in the Indian market encouraging Indians to make more purchases [overseas]."

Back in the spot market, "There was no significant economic data...to provide any direction for gold," says Commerzbank's precious metals team, adding that silver continues to move "more or less in line" with it.

New data overnight showed Japan's monetary base – the total amount of currency in circulation, plus commercial bank holdings at the central bank – rose to a new record in October for the 8th month running. 

Reaching more than ¥186 trillion ($1.9trn), the monetary base stood 46% above October last year thanks to the Bank of Japan's newly aggressive quantitative easing program of bond and other investment purchases.

Ahead of Wednesday's Bank of Japan policy decision, governor Haruhiko Kuroda said today the central bank "[is] ready to take appropriate policy adjustments without hesitation" to achieve its 2.0% per year target rate for consumer price inflation.

Japanese consumer prices were flat year-on-year in September, after 15 years' deflation.

Meantime in the United States, any "tapering" of the US central bank's $85 billion per month in quantitative easing "is a data-dependent program," said St.Louis Federal Reserve president James Bullard to CNBC.

 

Adrian Ash

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.

 

China has only 2% of its Total Foreign Reserves in gold.