Column: After three years of exports China is now short of lead
The global lead market has bifurcated since the start of June, with Shanghai prices significantly outperforming that of the LME.
The gold price extended Tuesday’s losses on Wednesday falling to a near 4-month low as negative sentiment sweeps the market.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery last traded at $1,259.35 an ounce, near the lows of the day and down some $7 from yesterday’s close.
Gold remains 5% to the upside for 2014 but is down $120 an ounce from highs reached mid-March as the rally on the back of safe haven demand and bargain hunting loses steam.
Gold’s annus horribilis in 2013 when the value of the metal dropped 28%, the worst performance in more than three decades, was characterized by the movement of massive amounts of gold from West to East.
Last year the world’s physical gold trusts or gold-backed ETFs experienced net redemptions of more than 800 tonnes collectively.
Most of that sold gold ended up in China and India and other growing gold consuming nations in Asia led by Vietnam and Indonesia.
But in the first quarter that demand tanked. Mainland China’s demand for gold fell 18% in the first quarter of the year as investors bought fewer bars and coins, offsetting record demand for jewellery.
India’s bars and coins buying also showed a huge drop-off of 54% to 98 tonnes and with jewellery consumption also sliding overall gold demand on the subcontinent slid 26%.
Hopes for the en masse return of the gold ETF investors peaked in March, but the holdings of industry benchmark SPDR Gold Shares (NYSEARCA: GLD) has once again slipped into negative territory for 2014.
There may be some spark returning to the market however, yesterday GLD holdings – which represent about 40% of physical gold-backed ETF holdings – shot up the most since October 2012.
Investors bought a net 8.4 tonnes on Tuesday bringing holdings back to 785.3 tonnes or 25.2 million ounces compared to 794.6 tonnes at the start of the year.
The last time ETF investors were this bullish was on October 4, 2012 when GLD recorded 9 tonnes of inflows. At the time gold was trading just under $1,800 an ounce.
GLD was a one way bet in 2013: the fund recorded only 17 days of inflows all of last year and almost 540 tonnes left the fund.
Perhaps the latest buying spurt is a signal of a turnaround in sentiment, especially in the face of continuing negativity on futures markets.
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In a video interview at the Wall Street Journal, Barron’s Brendan Conway argues the forces crimping gold’s rally is not going to go away, namely the disappearance of the ETF investors and developments in China and India.
Photo by Bartlomiej Magierowski
