Last week gold had its biggest weekly gain in over 10 weeks, a great start to 2014.
Gold was lifted by strong Chinese buying, coin demand and record low speculative positions.
It looks as though the gold market may almost be resetting itself as significant fundamentals are returning to levels seen pre-crisis, suggesting major speculators are moving out of the paper gold market. If this is the case, then physical gold may begin to impact its own price, rather than the paper gold market dominating.
These key fundamentals are the levels of speculative positions (now at 2008 levels) gold ETF holdings (also at 2008 levels) and gold coin sales which have begun to climb once again.
Premiums on the Shanghai Gold Exchange show that buying picked up significantly last week as the gold price soared past $1,200. On Friday, premiums were $20 nearly $5 higher than the December average.
The gold price found support from the tumble in equities on Friday, an interesting start to 2014 given the soar in the stock market last year. Once again, we expect the negative correlation between the stock market and the gold price to play a significant role in the demand for gold.
Trading volume on COMEX remained low last Friday, around 20% below the 30-day moving average, according to Reuters data.
Whilst the gold price performance last week was a good way to start we expect gold to come under increased pressure this week as more participants return to the markets have the Christmas break. A strong dollar and weak crude oil prices are likely to weigh on the precious metal.
We shouldn’t give all the praise to gold, all four precious metals performed well last week. Platinum, the best performing precious metal of 2014, climbed to its highest since November.
No doubt that in the coming months participants will be looking out for further signs of an improving recovery and the effects of tapering. This will certainly be the focus in the run up to the February FOMC meeting, Janet Yellen’s first as Chairwoman.
Coin demand in 2014, to beat 2013?
Last year, one of the top stories in the gold world was the record demand for gold and silver coins. 2014 looks as though it may not disappoint. On the first business day of 2014, the US Mint reported high sales of its newly minted 2014 gold American Eagle coin.
On Thursday, the first day of trading in 2014, US gold coin sales reached 37,500 ounces. This was a quarter of the total January 2013 sales.
2014 minted US gold coin sales are likely to be affected by the ongoing sales of 2013 dated coins, which the US Mint intends to keep selling until stocks are depleted.
If anyone is looking for a whole new you this January then I may have found you the perfect thing. A Lebanese family-run business has released a ‘luxury’ soap which contains, amongst other things, 14 grams of gold powder. According to the producers the soap “really [is] something special, [as it has] special psychological and spiritual effects on the human being,”
A Zimbabwe government official said on Friday that the country would be seeking re-admission into the London Bullion Market Association. It was originally expelled by the LBMA for failing to produce the required 10 tonnes of gold per annum. The government has now ensured that it controls the company solely in charge of buying and exporting the country’s gold. In 2013 it is thought that the country produced 14 tonnes of gold.
Further good news for physical gold demand. On Friday reports showed that Turkey’s gold imports reached record levels in 2013, totalling 302.3 tonnes, a 150 percent increase on 2012 figures. The increased buying comes on the back of weaker gold prices and a trade relationship with Iran. December 2013 figures were over 60% of those seen in December 2012.