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Physical Gold Demand Better But Not ‘Excellent’ After Price Drop

Kitco News

(Kitco News) - Physical demand for gold has improved on the recent price decline, although traders say it’s still on the soft side and any pickup may not be quantifiable until key nations start releasing their import/export data for May.

“It’s better than before, but it’s still not excellent,” said Afshin Nabavi, head of trading at trade house MKS (Switzerland) SA, in an interview with Kitco News.

Meanwhile, holdings in global exchange-traded funds have increased over the last two months even as the price fell, observers said.

Spot gold spent most of 2018 range-bound between roughly $1,300 and $1,365 an ounce before falling through the lower end of that band one week ago. Prices bottomed just above
$1,282 an ounce on Monday and have edged higher since. As of 8:33 a.m. EDT, spot gold was up $2, trading at $1,295 an ounce.

“The market was pretty poor on the physical front last week,” Nabavi said. “When we held nicely on the downside, we saw better demand coming in.”

Basically, as prices were sliding, many potential buyers still held off waiting to see if they would be able to obtain gold at even cheaper prices, Nabavi continued. Further, he said, buyers do not want to pay a premium when there is a fair amount of supply available.

Bart Melek, head of commodities strategy with TD Securities, said it’s too early to say just what the impact on demand may be until hard data is released, such as India’s import data and Hong Kong’s exports to China. Further, much gold moves through Switzerland, so this country’s exports are closely monitored as a sign of gold demand as well.

“For the most part, this [price fall] will probably stimulate physical demand down the road,” Melek said. “The problem is still the [strong] U.S. dollar.”

Commerzbank analysts, in a daily research report on commodities, still described the overall physical market as soft.

“Contrary to our expectations, the lower gold price has hardly attracted any buyers so far,” the bank said.

For example, in India, gold is trading at its highest discount compared to the world market in two months, with local traders reporting this is up to $4 per troy ounce, Commerzbank said. Further, analysts added, depreciation of the Indian rupee has actually driven up gold prices in the local currency in India.

“The collapse of the Turkish lira could also prompt buyer reticence in Turkey,”
Commerzbank said. “In any case, gold in Turkish lira is trading at a record high.”

ETF Holdings Up Since March

While hard data on recent physical demand is not readily available, statistics for ETF holdings can be tracked. Thus, this is one aspect of the market “we can talk about almost in real time,” Melek said.

He pointed out that global ETF holdings of gold were 73.291 million ounces on March 30, when gold was still well above $1,300. Now that gold is down around $1,295, those holdings have actually edged up to 75.18 million ounces, he pointed out.

The ETFs trade like a stock but track the price of the commodity, with metal put into storage to back the shares.

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 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.