April 26, 2013 7:08 pm

Demand for Asian jewellery boosts gold

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Strong demand for jewellery in Asia as well as coins in the US pushed up gold, and the yellow metal closed up 10 per cent from its two-year low, seen earlier this month.

Continued physical demand for gold has lifted the precious metal since it fell last week to $1,321.35 a troy ounce, the lowest level since January 2011. Buying in India, China and Hong Kong ballooned, while in the US, sales of American Eagle gold coins totalled 203,500 ounces through April 25, three times that of the previous month and the highest since December 2009.

The yellow metal closed the week at $1,454.48 a troy ounce, up 3.6 per cent on the week and 10 per cent from the April 16 low. Buying by financial investors with bearish positions, who moved to close them after a recommendation by Goldman Sachs, earlier this week, also pushed prices higher.

While the return of physical demand, especially among retail buyers of jewellery, coins and small gold bars, had lifted the mood among market participants, many analysts questioned whether that demand would continue.

Matthew Turner, precious metals analyst at Macquarie in London, said the jump in physical demand was impressive but noted that it was a result of the fall in prices. “Every time the price goes up, the purchases should get less strong,” he said.

Tom Kendall, analyst at Credit Suisse said: “We expect that demand to be satisfied within the next one to two weeks,” adding that the current rally would struggle to push the gold price beyond the $1,480 to $1,500 a troy ounce level.

Despite the physical buying, liquidation of exchange traded funds was continuing, especially in the US, said analysts. Total gold held against the popular SPDR ETF in the US had fallen 18 per cent since the start of the year.

Traders and analysts said the overall attractiveness of gold was waning among financial investors. The yellow metal had lost its status as a haven asset due to the recent volatility, while the liquidity pumped into the financial markets thanks to monetary easing by the US Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank was flowing into the equity markets.

With China on holiday for three days next week, many investors are cautious about the reduction in physical demand. The next technical resistance level is around the $1,525 a troy ounce mark, said David Govett, head of precious metals at commodities brokers Marex Spectron.

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