Weak US Inflation Sees Gold At 5-Week Low On "Western Disdain", Chinese Imports Revised Higher

WHOLESALE gold fell to new 5-week lows Wednesday lunchtime in London, dropping below $1257 for a 2.5% loss so far this week after new data showed US consumer prices falling last month from September.

Year-on-year, inflation in the US CPI fell to 1.0%, its lowest level since the deflation of 2009.

US stock markets rose after the news, while European equities cut earlier losses.

Silver tracked gold lower, falling to a 15-week low at $20.14 per ounce in wholesale London trade.

"[Gold is] attempting to find a floor amid weak physical demand and [Western] investor disdain," says a note from Robin Bhar at SocGen.

"With speculators remaining net short," says a commodities note from ANZ Bank, looking at the bearish bets of hedge funds and other non-industry players, "a short-covering rally could see gold spike higher.

"[But] we expect gold to see solid resistance around the $1290-95 area."

"A slip through the six-month support line at $1265.02 will confirm our bearish outlook," says Commerzbank's technical analyst Axel Rudoplh.

Ahead of today's weak US inflation data, "The [US Fed] remains committed to maintaining highly accommodative policies for as long as they are needed," said current chair Ben Bernanke in a speech late Tuesday.

Looking ahead to Wednesday's later release of notes from the latest US Federal Reserve meeting, "Dovish minutes may result in some short-covering of gold," agrees Standard Bank's commodity team in London.

"[But] we doubt a rally would last, especially in the current absence of strong physical demand for gold from Asia."

China's imports of gold bullion through Hong Kong have tripled in 2013 to 855 tonnes, says a report today from Reuters. Other import routes, which aren't officially reported, could have added a further 133 tonnes, says the newswire, citing data from Global Trade Information Services (GTIS).

Gold dealers in former world No.1 consumer India are meantime starting to sell gold coins once again, says MineWeb, after the industry's self-imposed ban of the summer, intended to show solidarity with the government's anti-gold import drive, aimed at reducing the country's large trade deficit.

With some 45,000 members, the All India Gem & Jewellery Trade Federation has now "advised our members to sell gold coins," says chairman Haresh Soni.

High prices and lack of supplies meant that, during last month's Diwali festival, people made offerings of dry fruits, instead of the more traditional gold coins, says Bachhraj Bamalwa, director of dealers Nemichand Bamalwa.

"What has worsened matters is the rampant smuggling, which is driving prices lower and getting customers flocking to the grey market," he's quoted by MineWeb.

Meantime in London, Bloomberg reported UK regulators are reviewing key gold benchmarks set by trade flowing through the center of the world's wholesale market.

Refusing to say which benchmarks are being reviewed, an unnamed source told the newswire that the FCA's interest is only preliminary, "and hasn’t risen to the level of a formal investigation."

Adrian Ash

(c) BullionVault 2013

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