Strong Gold Buying In India, China Providing Current Price Support

Yesterday gold made its biggest gains in the last week and is now holding around $1,660 thanks to markets looking ahead to the ECB meeting tomorrow and Japan’s interest rate decision this month.

Whilst Chinese gold investment ahead of the Lunar New Year appears to have provided much support to the gold price, it also seems last week’s sell-off was perhaps a little short-sighted given the chances of real-rates increasing is unlikely in the foreseeable future.

Strong buying from India, as well as China, will provide some support to the gold price over the coming weeks, however without added momentum we are unlikely to see it reach over $1,700. Indian gold investment impressed this week as traders rush to import gold ahead of the import duty rise, Reuters report that premiums on gold shipments were at their highest level in two months yesterday.

Demand for silver continues to impress as the world’s biggest silver-backed exchange-traded fund, the Silver Trust (SLV), saw holdings of its shares jump to 10,112.22 tonnes on Monday, a level not seen since May 2011.

Societe Generale released its lowered forecast for 2013 yesterday, where it sees gold prices averaging $1,700 but it does remain ‘moderately bullish’. Its revision, from $1,800, is due to the weak price action at the end of 2012 and the last couple of weeks. Their silver forecast has also been revised to $31 from $34.

Yesterday was a day when the whole of the eurozone were reminded that politicians are in it to win it and not to tell the truth. Barroso’s comments on Monday that the euro’s Armageddon-type threat had been ‘overcome’ were quickly blasted to smithereens as official figures showed unemployment and retail sales had plunged the economy into new depths. A quick snap-shot shows Spanish youth unemployment is at 56.5% whilst German exports fell by 3.4% in November.

The eurozone debt crisis could already have caused the end of the single-currency union if it weren’t for Chancellor Merkel and the German electorates’ backing of over 300 billion euros worth of bailouts. However Germany’s economy, assumed by many to be strong, is something which cannot be ignored for much longer. The Bundesbank believes the economy will grow by no more than 0.4% this year and threats of competition within the Eurozone are a reality. This interesting article on Bloomberg explains why this is now the time in the eurozone crisis when Merkel must turn her attentions back to her own country which carries the single-currency union on its shoulders.

Here in the UK, households continued to feel the pinch last month as food price inflation was at 4.1%, well above the year before. Shoppers were, however, compensated by supermarket non-food item inflation which was 1.5% over the year, driven by bargain hunting savvy shoppers. Food inflation it seems is practically expected these days. A YouGov poll showed the public still expects inflation to remain well above the Bank’s target and for it to do so in the foreseeable future – at a rate of 3.3% a year for the next five to ten years.

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