Asian Gold Buying Jumps, Central Banks Spend $100Bn to Support Dollar

By: Adrian_Ash

U.S. DOLLAR wholesale gold prices ticked lower Thursday morning in London – hitting a low of $1488 per ounce, unchanged for the week so far – as European stock markets rose and government bonds held steady with commodities. 

Silver prices rose 2% to $35.70 per ounce, recovering the last of this week's losses. 

"We saw interesting physical gold demand [on Wednesday]," says a note from Swiss precious metals group MKS. 

"Growing physical interest upon price dips" is giving gold prices support, according to Suki Cooper, London-based precious metals analyst at Barclays Capital. 

"Longer-term investor appetite remains relatively robust against a backdrop of lingering macro uncertainties."

The US Dollar meanwhile traded in a tight range Thursday against other major currencies, after minutes from the latest Federal Reserve meeting showed no intention of a rise in interest rates.

Emerging-market central banks spent perhaps $100 billion buying Dollars in April to support the US currency, says a note from Barclays Capital.

Total world gold demand in, contrast, was up 11% in the first quarter from the same period in 2010, according to market-development group the World Gold Council's latest Gold Demand Trends.

"Although there have been knee-jerk reactions when there is a concentration of news, in general since the collapse of Lehman Brothers people have been coming out of other commodities and into gold," says Philip Newman, research director at GFMS, the precious metals consultancy which supplies the WGC with its key demand trends' data. 

China and India accounted for 63% of the first-quarter's 981.3 tonnes of gold bullion demand. US demand fell from the end of 2010. 

"Chinese appetite for gold has increased rapidly over the past few years," says Albert Cheng, managing director for the Far East at the WGC. 

"In March 2010, we predicted that gold demand in China would double by 2020, however, we believe that this doubling may in fact be achieved sooner. Increasing prosperity in the world's most populous country coupled with their high affinity for gold will serve to drive demand in the long-term." 

The supply of recycled scrap gold – primarily from jewelry owners looking to raise cash – fell 6% year-on-year in Q1, according to the WGC's report, falling to 347.5 tonnes even as world gold prices hit new record highs. 

"In the Eastern markets, they are trying to accumulate gold, so we don't see much recycling because accumulation is more of a focus for them," explains Eily Ong, investment research manager at the WGC. 

Gold-backed trust funds (gold ETFs) meanwhile saw net outflows equivalent to 56 tonnes during the quarter, the first such fall since just before the global banking crisis began in summer 2007. 

In Hong Kong on Wednesday, trading began at the Hong Kong Mercantile Exchange (HKMEx). A total of 3,929 gold futures contracts were traded, equivalent to 3.9 tonnes of gold.

Meantime in a New York jail cell, Dominique Strauss-Kahn resigned as head of the International Monetary Fund on Thursday, following his arrest last weekend on sexual assault charges. French finance minister Christine Lagarde is the early favorite to replace him. 

Lagarde argued in March that the European Stability Mechanism (ESM) – which will include around €620 billion of borrowed capital – should be given a rating of AAA when it goes live in 2013. The ESM will be the Eurozone's permanent bailout mechanism, replacing the current European Financial Stability Facility.

European Central Bank (ECB) executive board member Juergen Stark warned on Wednesday that the ECB "a debt restructuring would undermine the collateral adequacy of Greek government bonds," meaning the ECB could no longer accept them as security against ECB loans.

By Adrian Ash
BullionVault.com

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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

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