Gold prices and ETFs have fallen to a six-month low, breaking through technical support at $1,600 an ounce, prompting record Chinese activity.
The resurgence of risk appetite over the past month has seen a general clearing out of net long COMEX gold speculative positions to August 2012 levels, as investors seem positioned for ‘the worst is over’ scenarios.
As investors look to have been rotating into more cyclical precious metals, like silver, a fall in the gold price has attracted buyers, prompting a gradual rebound in gold positions. Bargain hunters have also begun to emerge, giving some stability to the gold price above US$1600oz., and boosting volumes on the Shanghai Futures Exchange to record levels.
While the technical picture has fueled the liquidation of gold holdings, macro fundamentals suggest a potentially attractive entry level, as global financial markets remain awash with liquidity, global interest rates expected to remain extremely low for the foreseeable future and key macro risks lingering, particularly for the Eurozone economy.
India remained gold’s biggest consumer in 2012, World Gold Council (WGC) figures show. Prospects of import duty increases in India from January 2013, prompted advanced buying, pushing demand up 41% quarter-over-quarter. Chinese demand growth was flat year on year, possibly reflecting optimism by Chinese investors that the country managed to avoid a hard landing.
While gold demand reached a record US$236.4bn last year, investment demand softened as purchasing managers indices, employment data and measures of business confidence illustrate the global recovery remains on track. Declines from investments were more than compensated by increases in official sector purchases, which reached a 48-year high, and in jewellery consumption. For 2013, the WGC claims the recent weakness in the gold price might persist for as the improved risk appetite prompts investors to rotate to more cyclical assets.
ETFS Physical Swiss Gold Shares (SGOL)