Gold spot price hit by slowing Chinese demand

on Jan 22, 2014
Updated: Oct 21, 2019
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_iNVEZZ.com: Wednesday, January 22nd:_ The XAU/USD initially today fell to $1,238 an ounce before retracing to be currently at $1,240. Yesterday, the gold spot price lost around one percent – its biggest one-day drop so far in the year.

Heraeus Metals trader Alexander Zumpfe says that “there was already a lack of fresh buying after the recent peak above $1,260”. The German trader adds: “This together with the tapering news and expectations that Asian physical buying might slow after Lunar New Year was enough to trigger selling.”
Asian traders believe gold prices may decline further on a softening of physical demand from China.

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Chinese gold premiums today fell to $12 an ounce from the $13 logged yesterday.
Morgan Stanley vice-president Joel Crane and the bank’s Australian chief metals economist Peter Richardson have collaborated in an analysis uploaded today which predicts that the price of gold will continue to fall this year as increases in equity markets make safe-haven assets increasingly unattractive and as improved regulation dulls risk appetite.

Morgan Stanley has cut its 2014 forecast for gold, with its new target 12 percent lower at $1,160 an ounce. The 2015 expectation was also lowered, by 13 percent to $1,138. Crane and Richardson see gold remaining under pressure from a continuing global recovery, and an attendant likelihood of interest rate hikes.
In expressing the view that there is “more pain to come”, the pair write that “price performance will continue to suffer as long as risk assets in general and US equities in particular continue to perform strongly, undermining the need for portfolio managers to hold more than a modicum of safe-haven assets”.

They predict that ETP holdings will decline by 200 tons this year and by another 150 tons in 2015. The analysts also think that a drop in prices induced by investors decreasing their net-long bets and decreasing ETP assets won’t be arrested even if lower prices boost physical demand in China.


Reuters has reported today that banks involved in the London Bullion Market gold fix are reviewing the mechanics of the process to try to ensure that the benchmark complies with upcoming regulations.
“With all the scrutiny on benchmarks, starting with Libor, it makes sense to make sure that the way the fixing is conducted doesn’t leave itself open to accusations of manipulation,” Reuters quoted an unnamed source as saying.
The twice-daily gold fix has been under investigation in recent months by regulators in London, Bonn and Washington DC keen to learn how prices are set.
Deutsche Bank last week said it would withdraw from the process as it scaled back its commodities business.
Morgan Stanley’s Crane and Richardson write: “Mounting regulatory pressures on investment banks operating in commodity markets, with an anticipated reduction in large-scale speculative activity and turnover, have also been increasingly reflected in lower gold prices.”

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