Strong gold demand in Asia "should offset" ETF selling

The price of gold and silver was little changed Tuesday morning near last week's finish, while European stock markets rose but Japan's Nikkei stalled its five-day surge as the yen bounced higher from four-year lows on the currency market.

Silver prices ticked higher to $27.40 per ounce, while gold regained $1,574.

Energy and industrial commodity prices also edged higher. Major government bonds eased back, nudging up the interest rate offered to buyers.

The U.S. Treasury will this week auction $66 billion in new debt, according to Bloomberg data.

"The [quantitative easing] actions of the Bank of Japan (BoJ) are having a profound effect on bond yields," notes the commodities team at Standard Bank today, "across especially emerging markets."

Because the BoJ's promise of $1.4 trillion in new money creation by 2015 is weakening the yen, says Standard Bank, "some gold-consuming countries, such as Thailand, [are] seeing their currencies stronger against the Dollar." So "there's been fairly strong gold buying interest from South East Asia...which should partly offset the on-going ETF liquidation."

China's net imports of gold through Hong Kong doubled in February from January's three-month, new data showed today, rising to more than 60 tonnes.

New York's $61-billion SPDR Gold Trust meantime ended Monday with the quantity of bullion backing its shares unchanged from Friday's new 21-month low of 1205 tonnes.

"Physical demand [has been] offset by professional investor liquidation," says the latest quarterly review from German refining group Umicore.

Swiss bank and major bullion dealer UBS today cut its average 2013 gold price forecast from $1,900 to $1,740 per ounce.

"We continue to expect the price of gold to moderate over the year ahead," says a note from Australian retail bank NAB, forecasting a 2014 average of $1,410 and citing economic recovery and lower risks in the developed world.

"Partly offsetting this is our expectation for central bank purchases by the emerging economies [plus] continued strong consumer demand from India and China."

Germany's Deutsche Bank today cut its 2013 price forecast by one eighth to $1,637, saying that the forces pushing gold prices higher over the last 10 years "have all moved into reverse".

Danske Bank analysts are more aggressive, cutting their 2013 gold price forecast below $1,500 and targeting $1,294 per ounce for next year.

"Gold is in our view still in bubble territory," they write, "despite the extended price drop seen since the autumn [and] the signs of global currency war earlier in 2013."

Commenting on the price action in gold, "I can say the chart doesn't look good," Reuters quotes a Hong Kong trader at Lee Cheong Gold Dealers. "I think $1,585 is the crucial point. If it can break above this level, another bull run or short covering will push up the market to $1600."

Reviewing the relative moves in gold and silver meantime, "The gold/silver ratio's rally picked up the pace last week," says technical analyst Axel Rudolph at Germany's Commerzbank.

The number of silver ounces you can buy with one ounce of gold "has so far reached 57.85, a nine-month high," Rudolph goes on. If the peak of 58.72 from June 2012 is broken, he says, "the psychological 60.00 region will be targeted as well."

About the Author
Adrian Ash

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.

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