Gold Bullion Sees "Explosion" in China's Demand, "Bargain Buying" in India

GOLD BULLION prices retreated to yesterday's low at $1315 per ounce in London trade Tuesday morning, drifting down as world stock markets and commodity prices also slipped.
 
The US Dollar extended its rally on the FX market, nudging the Euro back towards 1-week lows beneath $1.3450.
 
That move held gold bullion prices for Eurozone investors around €975 per ounce, some 4% below last Thursday's 1-week highs.
 
Major government bonds ticked higher, meantime, nudging the yield on 10-year US Treasury debt down to a 6-week low of 2.68%.
 
Silver prices were more volatile than gold bullion, moving 2% down from a high of $22.02 per ounce, hit early in Asian trade.
 
"Despite ongoing outflows from the gold ETFs," says German bank Commerzbank in a commodities note, "physical [bullion] demand from Asia could offer some support to prices."
 
Ahead of China's Golden Week holidays – which officially start next Tuesday – "gold buyers are likely to take advantage of the lower price level to stock up," says Commerzbank.
 
Traditionally the largest market for buying gold, "[India] this year it looks very likely to be eclipsed by Chinese demand," writes SocGen analyst Robin Bhar in a new note today, "possibly by as much as 100 tonnes when all areas of fabrication (and hoarding) are taken into account.
 
"Part of the reason for this is the explosion in Chinese demand."
 
Gold consumers bargain-buying in current world No.1 India should encourage fresh bullion imports, Commerzbank reckons, after a virtual shutdown over the summer.
 
"The festival and wedding season is just around the corner. [This peak for gold demand] should be even more buoyant this year thanks to a good monsoon [and] preclude any continued slide in the price of gold."
 
Neighboring Dubai however – through which 25% of the world's annual gold bullion flows pass, according to Reuters – has seen trade decline by three-fifths as a result of India's strict anti-import measures taken in 2013, local dealers report.
 
"Even once [India's] imports have re-started," the newswire quotes a trading house executive, "we will not see the same kind of volumes that we used to see earlier," when the first-half of 2013 saw flows to India rise 10% from the same period last year.
 
Thanks to confusion over India's new gold bullion import rules – under which 20% must be set aside for re-export – lack of material saw the value of India's gold jewelry exports drop almost 60% over the last 5 months vs. April-to-August 2012, the Gems & Jewellery Export Promotion Council (GJEPC) said today.
 
The world's largest gold jewelry exporter, India saw a slight uptick in August's sales from July.
 
But right now, the "issue is getting the raw material even if they have export orders," Reuters quotes Colin Shah at Mumbai-based exporter Kama Schachter.
 
Back in China, "Most jewelers have already stocked up in anticipation of Golden Week," Bloomberg today quotes Wang Xiaoli at CITICS Futures Co., part of the country's largest brokerage.
 
But "physical purchases are steady when prices fall."

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Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.

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