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China Nearly Doubles Gold Imports

Release Date: 
Saturday, January 12, 2013

Gold was volatile this week on growing Chinese demand and economic news in Europe ultimately ending $9.50 higher for the week, settling at $1657.50 per ounce at 2:15 PM Pacific Time at the New York Spot Market close, while silver was $1.35 higher, closing at $30.67 per ounce.

The European Central Bank (ECB) announced its unanimous decision on Thursday to keep interest rates at current levels; however ECB statements boosted speculation the ECB will enact policies to promote growth. 

“The economic weakness in the euro area is expected to extend into 2013,” ECB President Mario Draghi said at a press conference Thursday.  “A gradual recovery should start” later this year as ECB policies work their way through the economy, he added.  The comments drove gold to a one-week high.  “Draghi made it clear that Europe is still on the weaker side, and they will continue to lean towards accommodative policy,” said Bill O’Neill of Logic Advisors.

Gold imports from Hong Kong to China almost doubled month-over-month.  Mainland China bought 90.8 tons of gold in November versus 47.5 tons in October. During the first 11 months of 2012, gold shipments to mainland China almost doubled to 720.1 tons. 

Analysts see the trend of rising gold demand in China continuing.  “China’s gold production is rising as its imports are increasing,” said HSBC precious metals strategists.  “China is simultaneously the world’s largest importer and producer of gold in the world. This pace of demand is likely to support prices, we believe.”  Phillip Futures analyst Lynette Tan expects demand from China to increase as the Lunar New Year approaches.

“Market players have evidently been taking advantage of the lower prices recently to purchase gold,” Commerzbank wrote in a report. “The Chinese New Year festival at the beginning of February is likely to have lured buyers into the market. The currently robust physical gold demand in China should have a bolstering effect on prices.”

"We find ourselves just ahead of Chinese New Year, which seasonally is one of the strongest times of the year for gold demand, and seven weeks away from the new deadline in the U.S. political system, and we're surprised at how low gold prices are," Natixis analyst Nic Brown said.  "If there was a reason for buying gold, you've got two good ones there…If the debt ceiling is used as a political bargaining tool, that would be a potentially ugly time for the U.S. credit rating," he noted.

Hon Cheung, Regional Director of State Street Global Advisors said that gold is a useful hedge against financial stresses and inflation risks.  “There are still significant financial stresses out there… we still have a U.S. debt ceiling coming up [and] the euro situation is an ongoing concern for investors,” he said.  “We’re seeing interest from investors thinking of ways to hedge inflation…gold has been quite an effective hedge,” against inflation and uncertainties, Mr. Hon said. 

Several analysts have noted that currency debasement may affect future gold prices. “If the currency devaluation race persists, gold is likely to remain in demand as an alternative currency,” analysts at Commerzbank stated in a research note. “We therefore believe that the latest weakness in the gold price will not be lasting, and expect to see noticeably higher gold prices in the second half of the year at the latest.”

Eugen Weinberg, head of commodities research at Commerzbank, said that gold may reach a new high in 2013, driven higher by liquidity.  “In the longer term, it’s still a bull market…we are forecasting the price to rise to $2,000 by the end of this year,” he said.  Quantitative easing from the Fed will continue for six to twelve months, which means about $500 billion to $1 trillion more in the financial system.  "So, a very positive environment for gold…”



“Most of the banks that have been forecasting the end of the bull run each year for the last twelve years have been notoriously wrong,” Mr. Weinberg said.  “I think this bull run will only end when we have the central banks and the governments coming to different recipes rather than printing money, rather than increasing liquidity…as long as this environment stays favorable, I think the gold price will continue [to rise].”



Blackstone Advisory Partners Vice Chairman Byron Wien said the price of gold may reach $1,900 per ounce during 2013 “as central bankers everywhere continue to debase their currencies and the financial markets prove treacherous.” 

"We think gold still has a chance of breaking above $1,800 and even reach $1,900 in the first half of the year due to fragile economic recovery in the United States and easing policies by central banks," said Li Ning, an analyst at Shanghai CIFCO Futures.

HSBC forecasted that gold may average $1,760 per ounce in 2013.  "Gold prices will recover this year," HSBC's Jim Steel said, citing central banks' easy-money policies and low interest rates.  Credit Suisse forecasted that gold may average $1,740 per ounce in 2013.

Martin Arnold, an analyst at ETF Securities, expects gold’s performance to improve on high liquidity.  “The global monetary stance continues to be supportive of gold…until real debt burdens are reduced, gold should remain in a structural bull market," he said.

Marc Faber, managing director, editor and publisher of "The Gloom Boom & Doom Report," said he purchases gold every month and will continue to do so.  “I will never sell my gold in my life,” Faber said. “I just think that government will print money and that there will be competitive devaluation, and so I want to have gold as an insurance policy.”



"At the end of the day, we expect [Fed Chairman] Bernanke's accommodative stance to dominate," BNP Paribas analyst Anne-Laure Tremblay said in a report.  INTL FCStone analyst Edward Meir said gold "should regain its footing" this year. "We do not see the Fed engaging in any meaningful balance sheet 'pruning' this year, and easing by other central banks would likely prop up demand for the metal as an alternative to paper currencies…”

"The economic environment around the world and in the U.S. is still quite poor," TD Securities said in a research note.  The U.S. faces some "very challenging negotiations" between President Obama and the House of Representatives over the debt ceiling, which could mean a fiscal drag in the coming months, the firm said.  This fiscal drag, added to potential spending cuts from Congress, may cause the economy to underperform expectations, according to TDS. This could reduce the probability the Fed will tighten monetary policy sooner, rather than later—reducing yield and lifting gold, TDS said.

 

(Sources: “Gold price ease as dollar moves higher,” Marketwatch, January 11, 2013; “PRECIOUS - Gold slips as stocks ease, dollar regains footing,” Reuters, January 11, 2013; “Marc Faber: Why I'll 'Never' Sell Gold,” CNBC, January 10, 2013; “Gold Climbs to One-Week High as Draghi Sees Weakness,” Bloomberg, January 10, 2013; “Gold futures rise on China exports, softer dollar,” Marketwatch, January 10, 2013; “US Stocks Could See a Correction: Wien,” CNBC, January 9, 2013; “Faber: Gold As 'Insurance Policy,’” CNBC, January 8, 2013; “Has Gold Lost Its Luster?CNBC, January 6, 2013; “Gold futures pull back a touch after gains,” Marketwatch, January 9, 2013; “PRECIOUS-Gold steady, supported by stocks on earnings,” Reuters, January 9, 2013; “Gold Halts 3-Day Drop as Weaker Dollar Increases Demand,” Bloomberg, January 8, 2013; “Gold Imports by China From Hong Kong Double on Economic Recovery,” Bloomberg, January 8, 2013; “Gold Consolidates in Cautious Asian Trading; Precious Metals Mixed,” Wall Street Journal, January 8, 2013; “PRECIOUS-Gold edges up on euro, Asia physical buying,” Reuters, January 8, 2013; “PRECIOUS-Gold prices crawl up, shaky U.S. jobs data supports,” Reuters, January 7, 2013; “Comex Gold Near Steady as Traders Weigh Fed Outlook,” Wall Street Journal, January 7, 2013; “Gold Can Still Break Through $2,000: Analysts,” CNBC, January 7, 2013; “PRECIOUS-Gold slips below $1,650 as stock markets retreat,” Reuters, January 7, 2013; “Fed sees bond buying ending this year,” Marketwatch, January 4, 2013; “Gold’s Fed-linked losses tempered by jobs data,” Marketwatch, January 4, 2013; “PRECIOUS-Gold falls to 4 1/2-month low after Fed minutes,” Reuters, January 4, 2013; “Gold Seen Rallying From Worst Streak in Eight Years: Commodities,” Bloomberg, January 4, 2013 “Commerzbank Favors Industrial Metals in 2013,” Bloomberg, January 4, 2013; “Gold Seen Rallying From Worst Streak in Eight Years: Commodities,” Bloomberg, January 4, 2013; “Gold Eases After Rally, Adds to Losses After Fed Minutes,” Wall Street Journal, January 3, 2013)

 

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