Precious metal prices partly recovered their recent losses last week, as depressed price levels were perceived as an attractive entry point by physical buyers and bargain hunters. 

The longer-term fundamental outlook for gold has not changed and appears robust in our view, despite the sharp falls seen in recent weeks.

While gold might still need a catalyst to break through the US$1,500oz level, recent valuations are becoming increasingly attractive for physical buyers as evidenced by the high volumes on the Shanghai Gold Exchange, surging bar demand in mainland China and Hong Kong and by record US gold coin sales.

Any sign of easing by the European Central Bank this week and/or weak employment data from the US could be short-term catalysts to further gold price upside. [Gold ETFs: Record Monthly Drop in Bullion Holdings]

Gold price recovers on surge in physical demand for gold. Gold surged the most in 7 months last week and it is now fast approaching the US$1,500/oz resistance level. Frenzy among coin and jewellery buyers from the US to China and India was behind the recovery of the gold price last week.

After a 25% fall in Indian gold imports in April, Indian jewellers and consumers appear to be rushing to buy gold ahead of some important festivals, on average paying a $10/oz premium to secure supplies (according to the Bombay Bullion Association).

With the Akshaya Tritiya festival shortly coming up and the Indian festival and wedding season officially starting in August, physical buyers in India are likely to continue taking advantage of current gold prices. Volumes on the Shanghai Gold Exchange also reached an all-time high last week, evidence of China’s strong return to the market. Investors are also starting to regain confidence in the gold price, with long positions up 33% week-on-week.

Next page: More on gold, silver and palladium

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