Gold Retreats to April-Crash Low, China to Beat India as No.1 Buyer

The PRICE of gold bullion retreated from an overnight rise to $1340 per ounce in London on Friday morning, trading back down to $1322 – the low hit by the mid-April crash – as the US Dollar ticked higher.

Silver prices slipped back below $20 per ounce – a 33-month low when first breached in June.

Japanese stocks meantime fell hard as the Yen rose on the currency markets, and European equities slipped with commodities.

Government bond prices held steady, with 10-year US Treasury yields at 2.57%.

The US Federal Reserve next announces interest-rate and quantitative easing policy on Wednesday.

"I don't really see how gold can go much higher," says Matthew Turner, precious metals analyst at Australian bank Macquarie.

"After all the shenanigans of the last few weeks, we know that [QE] tapering at some point is clearly still the policy."

China's households will meantime overtake India as the world's No.1 buyer of gold in 2013, said Marcus Grubb, managing director for investment at market-development organization the World Gold Council, on Thursday.

Buying perhaps 1,000 tonnes of gold – around 1 ounce in every 4 sold worldwide in 2013 – China is growing its jewellery demand, Grubb says, but not as fast as it's growing demand for investment gold bars and coin.

Analysts have been forecasting China to overtake India since late 2009.

Investment bank and bullion market-maker Societe Generale yesterday warned that gold-price volatility looks certain if there's a "hard landing" in China's economy.

"Gold purchases by central banks have noticeably slowed of late," says a note from Germany's Commerzbank, pointing to the 400 tonnes forecast for 2013 against last year's 532 tonnes.

New data from the International Monetary Fund showed only light gold buying amongst central banks in June, with Turkey's reserves falling for the first time in a year, down 0.8% to 441.5 tonnes.

“The flows in the central banks are pretty small now, the big shifts are gone,” Bloomberg quotes economist Justin Smirk at Westpac Banking in Sydney.

"Central bank buying might give us a little bit of a floor, but they’re just soaking up some of what the ETFs are selling. You’re not going to see central banks coming in to push the price up."

The world's largest exchange-traded gold trust fund, the SPDR (ticker: GLD) yesterday shed another 2 tonnes on Thursday, taking its bullion – held to back shares in the trust – down  to 927 tonnes, the lowest level since Feb. 2009.

Lower prices mean supplies of scrap gold from existing jewelry and investment owners may slump by three-quarters to 400 tonnes or below, according to 2013 forecasts earlier this week.

"The pawn-broking industry is facing a collapse in the price of gold," reports NPR's Planet Money, reducing margins on gold items pledged by borrowers.

On the mining supply side, meantime, world No.3 Goldcorp joined No.2 Newmont in announcing sharp write-downs on the value of its assets, thanks to the 20% drop in world gold prices so far in 2013.

Adding $2 billion and $1.8bn respectively to the gold mining majors' recent $9bn in writedowns, Goldcorp and Newmont Mining have both dropped more than 40% already on the stock market since gold began falling from $1800 per ounce last fall

(c) BullionVault 2013

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