Demand For Physical Gold Won’t Fade Away In 2014 But Won’t Help Prices In Q1 - ANZ

By Neils Christensen of Kitco News
Wednesday December 18, 2013 12:08 PM

(Kitco News) - Demand for physical gold bullion, especially in China, will remain strong in 2014, but it could lose its ability to support prices in the first quarter, said an Australian analyst.

Victor Thianpiriya, commodity strategist from Australian New Zealand Bank (ANZ), said China and India to continue to dominate the physical market in 2014. China, in particular, has a long way to go before the desire to own the yellow metal is abated.

“The sky is the limit for retail demand in China,” he said.

Unfortunately, although physical demand helps to support the market, Thianpiriya expects it is only a matter of time before prices drop below the yearly low established in June around $1,180.

“Right now the only support we are seeing in the market is from strong physical demand. I’m not sure prices can remain at these levels for long,” he said. 

Thianpiriya said ANZ forecast the price of gold to hit a low of $1,150 in the first quarter; however, prices should start to recover in the second half of the year and hit $1,450 by year’s end. Weak investor demand in the West remains one of the biggest hurdles for gold prices.


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“About 800 (metric tons) of gold have left ETFs (exchange-traded funds) and we have seen about 600 (metric tons) of physical buying so that still leaves a lot of gold in the marketplace,” he said. “That is a fair amount of surplus the market has to absorb and that will take time.”

Thianpiriya added that during next year it will be important to continue to monitor activity in China as the demand for physical gold has become price dependent.

The Australian bank has a unique perspective on the physical demand in Asia, especially China. Thianpiriya said the bank is one of the top three suppliers of gold into China and is only one of two foreign banks allowed to trade the yellow metal on the Shanghai Gold Exchange and the Shanghai Futures Exchange.

Also, in August, ANZ official officially opened its 50 metric ton bullion vault in Singapore.

The market is already seeing examples of opportunistic buying when gold prices hit a session low around $1,211 per ounce on Dec. 4, Thianpiriya said. However, because of short-covering following the recent lows, premiums on the Shanghai Gold Exchange started to drop again as demand ebbed.

Another important factor Thianpiriya said he will watch in 2014 is Indian demand. In 2013, the Indian government initiated some very firm restrictions on gold imports, which reduced demand for the yellow metal in the world’s biggest gold-consuming market.

 “There is a lot of pent-up demand in India and that will be positive for gold if the government eases its restrictions,” he said.

Thianpiriya said it is still uncertain whether or not the government will ease the restrictions. The lack of gold coming into the country has helped India reduce its massive current account deficit and all that work might be undone if the government eases its restrictions, he said.

“Hence import restrictions may not be lifted despite continued push-back from the jewellery industry,” he added.

The gold restrictions could end up being a major political issue as the country will be holding elections in May.

By Neils Christensen of Kitco News; nchristensen@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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