Why China Is Set To Drive Gold Prices Skywards

.By Motley Fool | Mon, 28th October 2013 - 15:31 The strength of gold bar, coin and jewellery demand across Asia helped gold to rebound from three-year troughs below $1,200 in the summer. Looking further ahead, in my opinion the prospect of accelerating physical demand from these regions — and in particular China — combined with enduring difficulties in the world economy, provide the perfect melting pot for gold to rise strongly. And if, like me, you believe that gold is ready to stage another surge to the upside, in my opinion SPDR Gold Trust (NYSEMKT: GLD.US) and Gold Bullion Securities (LSE:GBS) are an excellent way to pocket gold-lined gains. These exchange-traded funds (ETFs) are designed to follow movements in the metal price. Chinese demand set to soar higher According to the World Gold Council (WGC), surging physical demand from China is set to push total purchases to more than 1,000 tonnes for the first time this year. Such a development would push India into second spot as the planet’s largest consumer, although purchases here are also expected to rise to around 1,000 tonnes in 2013. According to media reports, Albert Cheng — the organisation’s Far East Managing Director — added said that he anticipates growing Chinese demand to move in line with wider economic growth in the country. In particular, the effect of an increasing population and rising disposable income levels are set to bolster demand for gold jewellery, the executive said. Latest proposals from the People’s Bank of China to relax gold trading rules could help the WGC’s prediction of surging domestic demand to become a reality. The plans would boost the number of firms allowed to import and export the metal, as well as increase the amount individuals can bring into China, without having to pay tax or report to customs, to 200 grams. Flaky macro outlook ready to push gold higher Although gold prices remain significantly down from those at the start of the year — the yellow metal was recently trading at $1,350 per ounce versus around $1,660 at the turn of the year, an 18.5% decline — prices have received a boost in recent weeks as macroeconomic concerns have again resurfaced. The safe-haven asset has risen more than 5% in the past fortnight alone. Gold has received a boost as expectations of the US Federal Reserve keeping its quantitative easing measures rolling into the considerable future has increased inflationary expectations, a supportive backdrop for gold. It has also highlighted the fragile state of the global economy which, combined with patchy data from North America, Europe and China in recent days, has confirmed gold’s position as a popular flight-to-safety asset in troubled times. ===================== PRECIOUS-Gold climbs to near 5-week high on Fed stimulus hopes Tue, Oct 29 00:58 AM EDT * Gold up for 4th day on bets Fed will keep stimulus * Prices climb close to 5-week high hit on Monday * Gold due for correction, physical demand could weigh -analysts (Updates prices, adds detail on session high) By A. Ananthalakshmi SINGAPORE, Oct 29 (Reuters) - Gold gained for a fourth session on Tuesday, edging closer to a five-week high, as weak U.S. economic data boosted views the Federal Reserve would maintain its stimulus measures, burnishing the metal's appeal as an inflation-hedge. The Fed begins a two-day policy meeting on Tuesday in which it is widely expected to confirm it will continue buying bonds at an $85 billion monthly pace. Gold prices have fallen nearly 20 percent this year on fears the Fed could begin tapering its stimulus programme, but a budget battle in Washington and a string of weak economic data have raised questions over whether the bank would scale back, giving bullion a boost. "In line with market expectations, we think the Fed will continue with quantitative easing," said Songwut Apirakkhit, managing director of Globlex Holding Management in Bangkok. "However, we think the expectations have already been priced in and gold is due for a correction," he said. He still expects gold to end the year around the current levels. Spot gold had edged up 0.3 percent to $1,355.51 an ounce by 0441 GMT. It has gained about 8 percent since marking a three-month low on Oct. 15. The metal earlier hit a session high of $1,360.06, not far from its five-week peak of $1,361.60 touched on Monday. U.S. manufacturing output barely rose in September and contracts to buy previously owned homes recorded their largest drop in nearly 3-1/2 years, the latest signs the economy's momentum ebbed as the third quarter ended. Many economists believe the Fed could push tapering to early next year. Though a prolonged period of easy money could support gold, physical demand could take a hit due to the higher prices. Demand in Asia has remained subdued for a while. "We continue to view gold as precariously placed while physical demand for the metal remains soft," ANZ analysts said in a note. "We viewed the metal as overbought above $1,340 on the back of weak demand from China and continued ETF selling." Outflows from gold-backed exchange traded funds have continued, weighing on investor sentiment. Precious metals prices 0441 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1355.51 3.92 +0.29 -19.05 Spot Silver 22.53 0.06 +0.27 -25.59 Spot Platinum 1465.00 -5.00 -0.34 -4.56 Spot Palladium 740.72 -2.78 -0.37 7.04 COMEX GOLD DEC3 1355.70 3.50 +0.26 -19.10 14383 COMEX SILVER DEC3 22.56 0.02 +0.10 -25.56 4621 Euro/Dollar 1.3774 Dollar/Yen 97.55 COMEX gold and silver contracts show the most active months (Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Tom Hogue) ======================= Billionaire John Paulson lost almost $1 billion as gold posted its steepest decline in 30 years hitting $1,361 per ounce. The precious metal is no longer seen as a safe-haven asset. Those who decided that it was too early to dump gold for good, lost a lot in the past few days. Billionaire John Paulson lost almost $1 billion of his personal wealth in the past two days as gold price fell to its lowest in almost two years, losing 13%, Bloomberg reports. Out of around $9.5 billion invested across his hedge funds, some 85% is invested in gold. Influential investor George Soros seemed well prepared for the slump. He said earlier in April that gold has been “destroyed as a safe haven” during the euro crisis. However he added he expected the global central banks to continue buying gold to support prices. Speaking with the South China Morning Post, Soros sounded cautious on the metal. “It has disappointed the public, because it is meant to be the ultimate safe haven. But when the euro was close to collapsing last year, actually gold went down, because if people needed to sell something, they could sell gold,” Soros said. Soros said he did not expect gold “to go down.” However he started significantly shortening his positions in gold in 2011 when he dubbed gold “the ultimate bubble." Back then he sold most of his holdings in the bullion-backed SPDR Gold Trust and iShares Gold Trust funds and invested in mining instead. Some experts believe its is too early to drop gold. If the economy in the US does not recover, gold might yet be a worthy hedge. Renowned bond investor Bill Gross, the manager of PIMCO's Total Return Fund said in early February said that he saw gold as a“stellar inflationary hedge” as global central banks attempt to reflate their economies. Investor Jim Rogers commenting on the latest gold drop to Bloomberg, said he’s not buying the commodity yet, as he expects it to go even lower. “This may be the correction that gold needs,” said Rogers, chairman of Rogers Holdings. “If it goes down enough, I will start buying it,” Rogers told reporters in Singapore. Gold slump not such a great surprise Experts say gold dropped so significantly due to a number of short and long term reasons. JPMorgan sees falling global inflation as the main factor slashing gold’s value as a sustainable hedge. In the short term, the main reason for gold's weakness is the rise of the US dollar value due to the credit crisis in Europe. Signals that the US economy is recovering may force the Federal Reserve to withdraw its stimulus package sooner than expected, the Economic Times reports. Goldman Sachs lowered its gold price prognosis expecting accelerating US economic growth. The price forecast for 2013 was lowered to $1,545 an ounce from $1,610. The forecast for 2014 hints at a further decline to $1,350 an ounce from $1,490. Global investors were seen getting rid of gold and transferring their funds in riskier assets. Weak economic data from China and reports that Cyprus could sell of its gold reserves to pay off debts contributed to the latest slump in the gold price. Сommodities super cycle over? Meanwhile analysts at Citigroup claim the commodities super cycle might be over. Citi Research’s Ed Morse, released a report on Friday, to coincide with the historic gold slump, while oil prices demonstrated a steep decline as well. “The second quarter should provide another affirmation that the so-called commodity super cycle has finally ended and should usher in the first ‘normal’ year in over a decade in which, broadly, commodity prices end the year lower than when the year started,” Morse’s reports said adding that the super cycle headed towards the end for several years dubbing it “Supercyle Funeral” that began in 2011. This year would be the “afterparty,”he added. Experts also foresee a drop in prices for aluminum, copper and nickel by some 5%-10% in 2013, and by 8% to 13% in the following year. ==============================