Gold Bullion Drop Significant, Chinese Demand Seen Lacking


"Gold bullion prices slipped to re-touch Friday's new 4-year lows early in Asian trade Monday, before recovering that $10 drop to trade at $1,172 per ounce as world stock markets edged down."

Gold bullion prices slipped to re-touch Friday's new four-year lows early in Asian trade Monday, before recovering that $10 drop to trade at $1,172 per ounce as world stock markets edged down.

With key US jobs data due later this week—and a European Central Bank decision on Thursday—the dollar rose to new two-year highs against the Euro.

The dollar also extended Friday's new seven-year highs against the Japanese yen, hit after the Bank of Japan increased the size of its quantitative easing asset purchases by one-third to the equivalent of $60 billion per month.

Gold bullion prices for UK investors bounced overnight from new 2014 lows beneath £730 per ounce.

Major government bonds meantime rose, nudging 10-year US Treasury yields down to 2.32%, more than one-tenth of a percentage point lower from this time last month.

Rather than coming in physical bullion, Friday's "selling pressure stemmed from the futures market," reckons Germany's Commerzbank in a note, pointing to a three-month high in the volume of US contracts changing hands—"more than twice as high as this year's average."

"Gold's Halloween downside shock is very significant," says precious metals analyst Jonathan Butler at Japanese conglomerate Mitsubishi, noting that "$1,180 formed a triple bottom" from gold bullion's Dollar-price lows of June and December 2013 with early October 2014.

Falling through that level "now opens up a trading range potentially down to $1,000," says Butler, but "we anticipate physical demand from Asia will now pick up, helping mop up ETF and speculative gold outflows and support the price to a degree."

Monday however brought national holidays in Japan and Russia, so "Liquidity was fairly modest," says Swiss refinery and finance group MKS, adding that "the lion's share of volume in gold occur[red] beneath $1,165" before the Shanghai Gold Exchange opened.

Today's wholesale demand in China—the world's No.1 consumer nation in 2013—"was again a little disappointing considering how much lower we are trading," says MKS.

Premiums above London prices for Shanghai's main gold bullion contract today whipped to a $1 discount in early trade, before rallying to end at the equivalent of $2.75 per ounce.

China's key interbank lending rate meantime fell near one-year lows on what one trading desk called "speculation policy makers will step up monetary easing".

Both manufacturing and service-sector surveys of Chinese businesses today showed a slowdown in activity growth for October. That coincides, notes the commodities desk at Standard Bank in London, "with a slowdown in China's property sector, where prices fell in 69 of the 70 cities surveyed in September."

World No.3 gold mining company AngloGold Ashanti (JSE:ANG) saw quarterly net profits halve to $41 million between July and September, the South African-based miner said today.

Its total cost of production also fell, down 10% from a year earlier to $1036 per ounce on the "all-in-sustaining" metric.

Silver prices Monday tracked and extended the moves in gold bullion, also slipping to re-touch Friday's new multiyear low before regaining that 2.3% loss to recover the weekend's level of $16.16 per ounce.

Adrian Ash
Bullion Vault

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