Gold Prices Steady On Frenzied Physical Demand

The Gold Market is being buoyed by frenzied physical demand and sales globally. Gold Prices hold steady and daily movements on exchanges remain range-bound, as physical demand holds up and central banks keep easing. Recent stock-market strength reduces the safe-haven investor demand. Gold gained additional support this fortnight from more easing and rate cuts by central banks from South Korea and Australia to India and Europe. However, continued gains in the stock markets continue to erode any safe-haven appeal of Gold investment, leading to range-bound price swings and uncertainty in the Gold Futures Markets.
The Reserve Bank of Australia cut to a record 2.75% this week, while the European Central Bank and Reserve Bank of India acted to ease last week. Although the Bank of Japan and the U.S. Federal Reserve refrained from changing policy at their last meetings, the BOJ doubled its monthly bond purchases in April and Fed policy makers last week raised the prospect of increasing their pace of bond buying above $85 billion a month. There was an unexpected reduction from Poland’s (POPERATE) central bank to an all-time low of 3%. The Bank of Korea unexpectedly cut its interest rates overnight to 2.5% from 2.75%, while the Bank of England left its monetary policy unchanged. The European Central Bank reported Thursday the Eurozone economy remains weak and could weaken further.

WGC joins India Post for India’s Akshaya Trithiya Gold Rush:
On Thursday, the WGC (World Gold Council) said that it had made an agreement with India Post and Reliance Money to offer a 7% discount to consumers for purchase of Gold Coins from over 970 – 1000 post offices to mark the auspicious occasion of the Akshaya Tritiya Festival. Consumers can purchase 99.9% pure, Swiss-manufactured gold coins in denominations of one to 50 gm from the post offices until June 30. The Akshaya Tritiya festival is considered by India’s more than 900 million Hindus as the traditional and auspicious day to buy precious metals, especially Gold Bullion and Gold Jewelry.

US Mint to launch Limited Silver Coins Sale: The US Mint announced the limited sale of it’s five-ounce America the Beautiful silver bullion coins from May 13. Due to shortages, the Mint will distribute half of its inventory equally among its authorized dealers, and the other half based on each dealer’s volume of “America the Beautiful” coin sales in the past two years. The U.S. Mint is keeping its own allocation process in place until it can boost delivery and meet demand. On Thursday, China reported its producer price index dropped more than expected in April, which suggests slowing production in China. Meantime, China also reported its consumer price inflation rate rose more than expected—up 2.4% versus expectations of a 2.2% rise, on an annual basis–which suggests China monetary officials could tighten monetary policy to ward off inflationary price pressures.

Rising Inflation is positive for Gold Prices while Interest rate hikes, which are a natural tool to curb inflation, will tighten money market movement, which in turn is negative for broader investments. The Chinese people meanwhile, continue to accumulate physical gold leading to record Gold Imports for the month. According to reports in China, the Chinese have purchased 300 tons of gold worth more than $16 billion since the mid-April crash. Why are the Chinese so frenzied in their quest for gold? China strictly controls real-estate purchases; money could be saved in the bank but interest rates are low, and taking into account inflation, there are hardly any profits, but mostly losses; it’s been only a few years since the stock market slump, with investors losing much of their wealth.

So, after gold prices fell, many people thought of gold as a last straw investment and now eagerly anticipate a future rise in value. They only want an investment outlet and that came on a Golden platter in April. Gold positive – Monetary Easing to continue as Rate cuts fail to trigger Growth: Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland, reported Bloomberg. As Group of Seven finance chiefs gather in the U.K. with monetary policy on their agenda, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains. South Korea’s rate cut yesterday was the 511th reduction worldwide since June 2007, according to Bank of America Corp.’s tally. While the liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth. With commodity costs in decline, the lackluster growth is also weakening inflationary pressures, forcing central banks to protect against further disinflation. JPMorgan Chase and Co. economists predict global inflation will fall to 2.3% in the current quarter, from over 3% at the start of 2012.