"Token Demand" For New Hindu Year Leaves Gold Waiting On US Data

WHOLESALE trade in London left the price of gold sitting at last week's finish of $1317 per ounce Monday morning, as European shares rose with government bond prices but commodities slipped.

Silver also held flat, trading near $21.90 per ounce – more than 5% below last Wednesday's 5-week high.

The Euro ticked higher from a 6-week low to the Dollar.

"Gold could claw back some gains," says the weekly note from Japanese conglomerate Mitsubishi, "as bargain-hunters re-enter the market and if the Dollar weakens on poorer than expected US economic data."

This week brings October's official Non-Farm Payrolls data on Friday.

Consensus forecasts are for the smallest net addition since January at 130,000.

If weak US data mean quantitative easing "continues at the current rate for longer than expected," says Robin Bhar at French investment and bullion bank Societe Generale, "then...further declines in the gold price may be delayed."

But SocGen's commodity team "still expect gold to fall towards $1100 next year" however.

Shorter term, "a batch of gold selling – likely from the [mining] community – scared all the small bidders [last week]," says one London trading desk.

"Gold miners are clearly looking at securing some of their future bullion sales."

Output from No.1 gold mining nation China will hit a record of 430 tonnes in 2013, according to China Gold Group Corp.

Consumers will meantime buy some 1,000 tonnes, reckons vice-general manager Du Haiqing, speaking at an industry conference in Tianjin.

Likely to overtake India as the world's No.1 buyers, China's "consumption will gradually cool down" starting 2014, says Du, "as consumers become more rational."

Meantime in India, and "despite the festival season of Dhanteras and Diwali," says the weekly note from German-based refining giant Heraeus, "support from this was missing" for gold in October.

"Demand was being met by recycled metal as well as via illegal channels."

"Physical demand continues to be lackluster," says Swiss refiner MKS in a note quoted by Bloomberg today.

"[Indian] jewelry stockists and retail investors [only] made token purchases of gold," MoneyControl says of the Diwali festival "to mark the beginning of the new Hindu Samvat year 2070."

Gold over the last 12 months "offered negative returns [to Indian buyers] for the first time in fifteen Samvat years," notes the Business Standard.

Western investment demand meantime saw net outflows of 6 tonnes last week from the giant SPDR Gold Trust (ticker: GLD), taking the quantity of gold needed to back the world's one-time largest exchange traded fund to a new 57-month low of 866 tonnes.

But whilst big-money mandates and institutional investors remain shy, total gold coin sales by the US Mint so far in 2013 have already overtaken full-year 2012, according to data on its website.

Sales of American Eagle and Buffalo gold coins stood at 993,500 ounces by end-Oct., says the Mint. That contrasts with total 2012 sales of 885,000 ounces.

Silver coin sales from the US Mint meantime stand "near a new annual record" notes one retail dealer, after strong October sales to distributors took 2013's running total to 39.175 million ounces, just shy of 2011's record 39.869 million.

"We remain bullish gold," says a Singapore dealing desk today. But gold "might be further tested before investors regain faith in the yellow precious metal," it adds, putting nearby support at $1300 per ounce.

Rising Spanish bond prices meantime pushed Madrid's borrowing costs down to the lowest level in more than 3 years.

The US Dollar edged back from multi-week highs to the Euro and Sterling after new data showed the Eurozone's manufacturing sector expanding as forecast and the UK's construction sector surging at the fastest pace since spring 2007.

The Pound rallied from a 2-week low of $1.5900 on the news, edging gold for UK investors down to £822 per ounce.

Adrian Ash

(c) BullionVault 2013

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