How can the US be beating China in gold buying?

Feb 27 2013, 18:26 IST
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SummaryUS be beating China in gold buying? In terms of expenditure growth per unit of GDP, that's how. In truth, of course, we can prove anything with statistical series. China's nominal expenditure on jewellery, bars and coins, i.e. its spending on gold as a physical investment, far outstrips that of the United States in tonnes, monetary terms and when set against units of GDP.

of 89 tonnes or 18 percent against the previous week (when gold closed at $1,648.70). This contraction was driven by a heavy increase in outright shorts, which jumped from 297 tonnes to 390 tonnes. Subsequent trading figures suggest that shorts have expanded further.

The major ETFs shed 47 tonnes between Feb. 14 and Feb. 22, with net dollar value of the underlying gold movements through the SPDR, where the majority of the activity was concentrated, amounting to an outflow of almost $2.2 billion over the period.

Asia, meanwhile, is capturing some of the market headlines, with plentiful fresh buying interest coming from China in late February. Turnover on the Shanghai Gold Exchange, for example, soared on the market's return from the New Year holiday celebrations. The exchange posted record turnover of 30 tonnes in the physical contracts on Feb. 18, the first day back, and the daily turnover in the week following the holiday was 21 tonnes, more than twice the volume in the equivalent post-New Year period of 2012. The Hong Kong premium over international prices has been posting 12-month highs, partly reflecting the New Year interest but also pointing to a reasonably robust underlying market.

Activity in India was reported initially to be down on Feb. 20 and 21 as a result of a national strike, but the domestic market perked up later on the 21st in the wake of the price fall, reflecting bargain-hunting, and managed to remain more or less at parity with international prices rather than going to a discount. Subsequently with the strike over, the Ahmedabad market moved into a premium to the international market.

There is, therefore, evidence of local interest in response to the pressure of the recent heavy gold sales, which have generally been concentrated in North American hours, and latterly helped trigger some of the recent short-covering in a heavily oversold market.

(Rhona O'Connell is a Thomson Reuters GFMS analyst. The views expressed are her own)

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