We might well be about to see the gold price (COMEX:GCJ14) take its first weekly fall since Christmas, as bears get over-excited about Fed tapering and emerging market troubles ease off, prompting the yellow metal to lose some of its safe-haven appeal.
In a wave of sympathetic selling, the silver price (COMEX:SIH14) also fell but has recovered from its low of 2014, climbing from $19.01 to $19.17/oz. Platinum and palladium are also suffering this week, despite ongoing industrial action issues at the South African mines.
Whilst Fed tapering and improved U.S. economic data is being blamed by some for the weaker gold price, a World Gold Council representative said yesterday that he believes the gold price has already priced much of this in already.
As from today, China is on holiday for the Lunar New Year. Market speculators appear bearish about the effect this will have on the gold market. This is despite the lack of impact insatiable demand from the same country had on the gold price in 2013.
The above does not mean that a lull in Chinese demand is not to be expected, in fact we are already seeing it happen. From about Tuesday onwards there has been a decline in volumes on the Shanghai Gold Exchange, a fall in demand has also been reflected in the decline in premiums. From the lofty highs of $20 at the beginning of the year, they are now down to a barely-noticeable $1-$2.
Jeffrey Nichols has discussed what the current premiums in both China and India really mean. In China they are down as buying calmed in the immediate period to the New Year Holiday, whilst premiums climbed in India as it became clear that the government was some way off relaxing the gold supply restrictions. Premiums in the country are now said to be as high as $75 thanks to demand that is not being satisfied.
Note how, when there is only one type of gold that will do – physical – supply and demand work together to offer a price that is more reflective of true market sentiment.
A slowdown in buying ahead of the Lunar New Year is not an indication of falling Chinese demand overall. Those suppliers and dealers who sell gold for Lunar New Year will have been buying in the month and weeks running up to the holiday, i.e. they needed to buy gold and now they have.
As alluded to above, platinum hit a four-week low yesterday, despite the ongoing mine issues in South Africa. Analysts believe this is on the back of ‘sympathy selling’ on the back of the declining gold price. The decline in production was expected for some time and is, therefore, likely to have been priced in.