London dealers returning to work caught up with a 1.4% drop for the week so far, plus news of falling industrial output in Japan, seasonally low jewelry demand in India, the world's No.1 gold buying nation, and also a new edict from the People's Bank of China, banning all non-official gold trading exchanges in the world's No.2 gold consuming country.
Silver prices also hit a two-week low, dropping 2.1% from London's last session, while Asian stock markets closed Wednesday lower— tracking industrial commodities down—following a raft of weak economic data from Japan.
But European equities ticked higher as Italy successfully raised more than €10 billion in new loans.
Buyers of Rome's new six-month bonds demanded an average annual interest rate of 3.25%, down from 6.50% at a sale in November.
Commercial banks in the 17-nation Eurozone last night parked a record €452 billion on deposit with the European Central Bank, beating the previous day's record of €412B, and more than €187B larger than before the ECB lent the banks €489B in three-year money at a cost of just 1% last week.
"The rupee has gone down considerably," says a Mumbai-based Gold Dealer quoted by the Economic Times of India, "and general feeling among consumers is that gold will fall from the current [high Rupee-price] levels.
"That's why demand is not improving."
The rupee has sunk to all-time lows on the foreign exchange market in 2011, despite the strongest interest-rate hikes since the Great Depression of the mid-1930s.
The Bombay Bullion Association said Tuesday that December's imports of gold bullion to India, which has no domestic gold mining output, will likely stand 50% below the level of December 2010.
"Inflation is too high and buying is not very aggressive," says Prithviraj Kothari, president of the BBA, adding that gold needs to fall back to 25,000 rupees per 10 grams to "spur some buying interest" after rising more than 30% and hitting new records above Rs29,000 earlier this month.
Tuesday also saw the People's Bank of China order the closure of all gold trading platforms and services outside the Shanghai Gold Exchange and Shanghai Futures Exchange, which—as it notes—are "approved by the State Council.
"Since 2001," the PBoC said in a press release accompanying the edict, "China's gold market has developed very rapidly. . .[as part of] the financial market system in which it plays an important role.
"The impact of enthusiastic investors in recent years. . .highlights the problem of illegal trading exchanges."
China's move comes seven months after the United States banned leveraged commodities and gold trading by "retail" investors outside the recognized investment exchanges such as Comex.
At the official-sector level, "The Chinese government should. . .further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation," says Zhang Jianhua, director of a research bureau affiliated with the PBOC, writing Tuesday in Beijing's Financial News, which is also run by the central bank.
It is now almost three years since the PBoC last updated its official gold bullion holdings, announcing a 75% uplift from 2003 at 1054 tonnes.
That took China to No.5 in the world league table of national central-bank gold holders. As a proportion of total reserves, however, China stands at No.65, holding just 1.6% of its $3.2 trillion forex hoard in physical gold bullion.
Adrian Ash, BullionVault
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Formerly city correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is head of research at BullionVault—winner of the Queen's Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body—where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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