Silver Beats Gold As Asian Demand Eases But "Challenges London" As World Hub

WHOLESALE GOLD rallied from a 1-day low of $1310 per ounce lunchtime Friday in London, but was still trading 1.4% down from last week while European stock markets also reversed earlier losses.

The US Dollar rallied from 9-month lows on the currency market as the budget shutdown in Washington saw President Obama cancel a long-planned tour of Asia.

Major government bonds eased back, and crude oil ticked up towards $110 per barrel of Brent.

Silver tracked and extended the moves in gold, first dipping to a loss of 2.7% for the week and then recovering to last Friday's finish at $21.80 as the start of New York trading drew near.

"Asian demand for physical gold picked up briefly this week when prices fell below $1300 an ounce," says Reuters.

Indian wholesalers continue to shy away however, the Times of India reports, with the state of Gujarat seeing its second-lowest gold imports of the last 5 years in September as confusion over anti-import rules persists.

"Macau [in contrast] imported more gold jewellery than food and drink in the period between January and August," reported the Chinese city's Statistics and Census Bureau today.

"Where would gold be," asked Jeremy East of Standard Chartered Bank at this week's LBMA conference in Rome, "if China hadn't come in and mopped up" what India didn't buy over the summer?

"I wouldn't have been surprised to have seen gold testing its big support level at $1050," said East.

Yesterday, however, "We are not seeing any demand come in from China even at these levels," Bloomberg quoted Chicago trader Frank Lesh at FuturePath, "indicating that people expect it to fall further."

Singapore dealers today reported ongoing demand for gold bullion from stockists in Thailand and other south-east Asian markets.

Malaysia's futures exchange will start trading gold contracts for the first time this coming Monday.

After auctioneers Christies raised $25 million with its first event in China last week, Singapore jeweler Mouawad is now offering a $55 million diamond and gold necklace, Reuters reports.

State-owned Chinese bank ICBC – the world's largest bank – is investing $£650m ($1bn) into a new business district at Manchester city airport in the UK, says the Financial Times.

"Gold has within living memory remained very much a London-centric market," writes Ross Norman of Sharps Pixley in the latest edition of Commodities Now.

"[But] not only is the epicentre of gold trading moving East, so is the vaulting. The emerging nations are making it ever easier and cheaper to buy and store. Their regulations and taxes are infinitely less onerous."

Singapore in particular is already seeing "significant flows of gold" according to ANZ Bank's local head of FX and commodities Eddie Listorti.

"Increasing numbers of high net worth individuals and family offices [are] opting for Singapore's status as a safe haven," he says.

Looking at price action, however, "Events in the US will have the biggest impact over the coming two years," reckons a new report from French investment bank and bullion dealer Natixis.

"As the US economic situation continues to improve, so gold prices are at risk of further declines as interest rates rise and the need for a safe haven dissipates."

Australia's government forecasting agency agrees, predicting that the gold price will average $1275 per ounce in 2014.

"[Gold is] expected to rebound in the near term," says the Bureau of Resources & Energy Economics in Canberra, due to the US Federal Reserve's decision not to "taper" its money-printing quantitative easing program in September.

However, "speculation on the tapering is likely again in 2014," it goes on, "particularly if more positive US economic data is reported."

Such speculation about US Fed policy, "as well as investor preferences shifting to other asset classes as interest rates recover to normal levels, are expected to result in lower prices."

Adrian Ash

(c) BullionVault 2013

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