"Uptick" In Asian Demand As Gold Hits 1-Week Low, Flirts With 3-Year Low In Sterling

WHOLESALE QUOTES for gold bounced from 1-week lows beneath $1270 per ounce Tuesday morning in London, turning higher as Asian and European stock markets failed to extend Monday's rise to new all-time highs in US equities.

UK investors wanting to buy gold saw it dip overnight within £15 per ounce of end-June's three-year low at £775.

Euro gold also rose from 1-week lows hit overnight as the single currency edged back against the Dollar despite better-than-expected ZEW sentiment data from Germany.

"Physical bids were absent on the break lower," says one Asian dealer.

But "there's been a slight uptick in demand," counters today's commodity note from Standard Bank's analysts.

Not as strong as in June, July or August, says the note, the rise in Asian buying "is certainly stronger than a week ago" following Monday's 1.5% drop.

Chinese premiums to London prices rose today above $4 per ounce on the Shanghai Gold Exchange, even as Yuan prices shed 1% by the close of business.

However, "We maintain that physical demand alone cannot push gold substantially higher," writes Standard Bank's Walter de Wet, "[not] while monetary policy, in especially the US, is normalising."

US Fed policy will drive 2014 gold prices, according to separate analysis from TD Securities' Bart Melek and Citigroup analyst Edward L.Morse.

"With macroeconomic news perhaps bringing mixed fortunes for gold," adds Jonathan Butler at Japanese conglomerate Mitsubishi, "the overall bearish trend could well continue."

Western investor selling on Monday saw a fresh 57-month low in the volume of gold bullion needed to back shares in the SPDR Gold Trust (ticker: GLD).

The world's largest gold ETF shed 1.2 tonnes to cut its holdings below 865 tonnes, a level last seen when the Fed's quantitative easing program was beginning, in February 2009.

"It's important not to remove support," said New York Fed president William Dudley last night in a speech, "especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited given that short-term interest rates areat zero."

But Philadelphia Fed president Charles Plosser, a long-time critic of the Fed's quantitative easing policy, meantime repeated his call for the US central bank to announce a total sum for QE, tapering its monthly money-creation and bond buying to end purchases when that level is reached.

"We cannot continue to play this bond-buying game by ear," Plosser told an audience at the Risk Management Association on Monday.

"[We] risk the Fed's credibility while creating lingering uncertainty about the course of monetary policy."

Silver today tracked but extended the move in gold, rallying from a new 3-month low overnight at $20.24 per ounce to reach $20.44 by Tuesday's Fix in London, set at the lowest price since 9 August.

New gold imports to India, the world's No.1 consumer but overtaken by China in 2013 thanks to aggressive anti-gold rules from government, were meantime delayed according to dealers, as logistics were focused on exporting metal.

"We have to understand," Reuters quotes a private bank dealer as gold also rallied from 1-week lows in the Rupee, "that it will be slow process of consignments for both exports as well as domestic consumption."

India's government is currently seeks to clarify and enact a strict 80:20 rule for new gold imports, imposed in the summer and setting a 20% re-export minimum on all quantities of gold landed.

Adrian Ash

(c) BullionVault 2013

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