Gold bullion prices fell further as London re-opened Wednesday after the Christmas and Boxing Day holidays, dropping to two-week lows in what dealers called a "very quiet session".
London dealers returning to work caught up with a 1.4% drop for the week so far, plus news of falling industrial output in Japan, seasonally low jewelry demand in India - the world's No.1 gold buying nation - and also a new edict from the People's Bank of China, banning all non-official gold trading exchanges in the world's No.2 gold consuming country.
Silver prices dropped 2.1% from last week's finish, while Asian stock markets closed Wednesday lower - tracking industrial commodities down - following a raft of weak economic data from Japan.
But European equities ticked higher as Italy successfully raised more than EUR10 billion in new loans.
Buyers of Rome's new six-month bonds demanded an average annual interest rate of 3.25%, down from 6.50% at a sale in November.
Commercial banks in the 17-nation euro zone last night parked a record EUR452 billion on deposit with the European Central Bank, beating the previous day's record of EUR412bn, and more than EUR187bn larger than before the ECB lent the banks EUR489bn in three-year money at a cost of just 1% last week.
"The rupee has gone down considerably," says a Mumbai-based gold dealer quoted by the Economic Times of India, "and general feeling among consumers is that gold will fall from the current [high rupee-price] levels.
"That's why demand is not improving."
The rupee has sunk to all-time lows on the foreign exchange market in 2011, despite the strongest interest-rate hikes since the great depression of the mid-1930s.
The Bombay Bullion Association said Tuesday that December's imports of gold bullion to India - which has no domestic gold mining output - will likely stand 50% below the level of December 2010.
"Inflation is too high and buying is not very aggressive," says Prithviraj Kothari, president of the BBA, adding that gold needs to fall back to 25,000 rupees per 10 grams to "spur some buying interest" after rising more than 30% and hitting new records above Rs29,000 earlier this month.
Tuesday also saw the People's Bank of China order the closure of all gold trading platforms and services outside the Shanghai Gold Exchange and Shanghai Futures Exchange, which - as it notes - are "approved by the State Council.
"Since 2001," the PBoC said in a press release accompanying the edict, "China's gold market has developed very rapidly...[as part of] the financial market system in which it plays an important role.
"The impact of enthusiastic investors in recent years...highlights the problem of illegal trading exchanges."
China's move comes seven months after the United States banned leveraged commodities and gold trading by "retail" investors outside the recognized investment exchanges such as Comex.
At the official-sector level, "The Chinese government should...further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation," says Zhang Jianhua, director of a research bureau affiliated with the PBoC, writing Tuesday in Beijing's Financial News, which is also run by the central bank.
It is now almost three years since the PBoC last updated its official gold bullion holdings, announcing a 75% uplift from 2003 at 1,054 tonnes.
That took China to No. 5 in the world league table of national central-bank gold holders. As a proportion of total reserves however, China stands at No. 65, holding just 1.6% of its $3.2 trillion forex hoard in physical gold bullion.
Buying gold or physical silver bullion today...?
Adrian Ash runs the research desk at BullionVault. Formerly head of editorial at Fleet Street Publications - London's top publisher of financial advice for private investors - he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to a number of investment websites.