Chinese and Indian gold and silver demand skyrocketing
The gold price recovered at Mumbai's bullion exchange in yesterday's trading session, buoyed by demand from India's jewellery industry. More and more international investors are also starting to expect that Portugal will draw upon financial assistance from EU partners, with further European sovereign debt instability expected.
In India, standard gold with a gold purity of 99.5% increased by 70 rupees and finished yesterday's trading session at 20,695 rupees per 10 grams. Pure gold with a gold purity of 99.9 jumped by 65 rupees to 20,795 rupees per 10 grams. The price for silver with a purity of 99.9 climbed by 400 rupees to 56,410 rupees per kilogram compared to the previous day. As traders from Mumbai's bullion exchange reported, the silver price was able to gain due to high investment demand as well as rising demand from industrial end users. Precious metals were also supported by the violence in Libya, which has driven many Asian investors to safe havens.
Temporary stabilisation of European bond markets, meanwhile, has not affected rising buying interest in gold and silver. Many investors are expecting that Portugal – following the precedent set by Greece and Ireland – will be the third Eurozone member to access the EU's European Financial Stability Facility (EFSF). Yesterday gold climbed to $1,425 per ounce in Europe until 3 p.m. Silverreached about $37.50 per ounce at the same time.
However, as a Reuters survey published on Wednesday shows, 43% of 28 participating analysts expect the gold price to stagnate in a range between $1,450 and $1,500 per ounce in the secondquarter. Half of the participants saw the gold price even below or within a range of $1,400 and $1,450 per ounce until the end of June. Some analysts predict that the dollar will soon bottom, which could negatively affect the gold price development in the second quarter. Nevertheless, this situation would not disturb the yellow metal´s long-term bull market, though China's central bank voices a more cautious note.
As a study by the People´s Bank of China (PBC) published last Friday stated, "we need to note that gold prices have reached historical highs, and its downward risks should not be overlooked". However, this caution this is hard to reconcile with the PBC also warning of a deterioration in Europe's sovereign debt crisis, further declines in the US dollar over the rest of the year, further gains in commodity prices and continuing lax monetary policy from central banks.
China's state-owned broadcaster CNTV reported this week that gold purchases by domestic investors are skyrocketing. As the head of a large Chinese gold trading company said in an interview with the broadcaster, his business had grown by 20% every month in the last two years. More and more local traders are being told that their gold deliveries are being rationed due to the intense demand. More delivery bottlenecks will add to price pressure. The demand from China's middle class is one of the main drivers of the gold price. Market observers said that this situation would likely not change in the foreseeable future.
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