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Will Physical Buyers from the East Step Up their Gold Buying?

The U.S. Comex gold futures have dropped 0.35% this week to $1,296.30 ahead of the FOMC meeting. Month-to-date, the futures have climbed about one percent after plunging 2.89% in March. Year-to-date, the gold futures have rallied 7.82%, beating the S&P 500 Index, which has risen 2.25%, and the Euro Stoxx 50 Index, which has surged four percent. The CRB Commodities Index has outperformed the gold futures this year and has rallied 11.31%. Month-to-date and year-to-date, the Dollar Index has rallied about 0.30%.

U.K. Leading the Pack of G7
The U.K. grew 0.8% in Q1 and 3.1% year-on-year and is expected to grow faster than the other G7 countries this year. The IMF predicts that the U.K. will grow 2.9% in 2014. With the unemployment rate falling below seven percent, the market expects the country to raise rates by the end of this year, likely the first among the G7. In Japan, the Central Bank maintains its pace of monetary stimulus, increasing the monetary base by 60 to 70 trillion yen per year. However, the private sector expects and wants to see more monetary and fiscal stimulus. The March inflation rate was 1.6% year-on-year, below the target rate of two percent.

Where is Gold Demand Heading?
Bloomberg has reported that the March gold imports from Hong Kong into China dropped 38% year-on-year to 80.6 metric tons, compared with 111.4 tons in February. Gold prices in the Shanghai Gold Exchange continues to trade at around one dollar discount to the London fixing. The depreciation of the Chinese Renminbi this year by about three percent has cheapened domestic gold prices versus those brought from abroad. On the other hand, the Indian gold import demand may rise as the import duty is gradually lowered. The assets in the largest gold ETF, the SPDR Gold Trust, have dropped about seven metric tons this year. The fall in holdings in April has wiped out all the gains in the previous two months. With this backdrop, Barclays has warned that the gold price floor is not firm as physical demand is not compensating for the softer investor demand. Nevertheless, the gold futures have bounced firmly off from the recent low at $1,268.40, indicating that bargain hunting and short-coverings have taken place.

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30 Apr 2014 | Categories: Gold

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