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
Thomson Reuters GFMS sees silver demand rising on a pick-up in manufacturing activity and investment. The metals research firm expects the silver price to benefit from accelerating global growth this year. However, the impact on the price will depend on the extent of the recovery in the Eurozone.
The silver price jumped 2% last week to US$24/oz as bargain hunting lifted silver coin demand. The recent price fall is expected to underpin investment demand, which could hit an all-time high this year according to the research firm.
Russian palladium exports reach the highest level since January 2010. With markets expecting nearly-depleted Russian stocks, the 9.39 tonnes of palladium imported into Switzerland from Russia in Q1 came as a surprise. If flows from Russia continue to be so strong, investors might lose appetite for the metal. Although too early to draw any firm conclusions it is something to watch.
Key events to watch this week. Investor attention will be sharply focused on the ECB meeting this week, with the consensus expecting a cut in rates. That would mark a bold shift in the ECB’s thinking as it has traditionally been reluctant to move rates below 0.75%. FOMC members’ reaction to the weak GDP and employment data will be closely observed and the payrolls data for April will give clarification as to how sustained the weakness in the US jobs market was.
ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)
