GoldMoney market report Week ending October 4th

This has been a quieter week for trading activity by GoldMoney customers compared with the previous 2 weeks although still above average 3 month trading levels.  In aggregate USD terms GoldMoney customers sold gold and bought silver in a 2:1 ratio although institutional customers were net buyers of both metals.  During the week GoldMoney customers continued to increase their holdings of precious metal stored in Singapore in line with the ongoing 6 month trend which comprises new metal purchases as well as relocation of metal to Singapore by customers who had previously stored their metal in other countries.

The US budgetary impasse dominated traders’ and investors’ minds worldwide, but it was the gold market reaction to it which surprised many.  On Tuesday, the morning after the US Government suspended non-essential activities due to the lack of a budget for the new fiscal year, the price of gold fell $50, taking it to below the $1,300 level to as low as $1,280. At the same time the dollar weakened, which in the past has driven money into gold as a safe haven. The following day the fall was almost completely reversed and silver even ended up with a small net gain over the two days.

GoldMoney’s Head of Research, Alasdair Macleod said there is no convincing explanation for the initial price reaction: ‘We can suggest technically-driven robots were responsible, or that with quarter-end book-squaring over, new bear positions were opened at the earliest opportunity. We can also note that Tuesday, the day the Commitment of Traders’ report is made up, is often a bad day for precious metals. Or there is another alternative reason: the Chinese are on holiday this week so their buyers are absent. Perhaps all these factors worked together.

‘The important point to note is that while markets generally were turbulent precious metals have broadly held their ground. And whatever games are played in the paper markets, underlying physical demand from Asian markets remains strong. Look for example at Chinese weekly demand, shown in the chart of Shanghai Gold Exchange deliveries, through which all officially imported bullion is delivered.

The weekly average delivery this year has been 43.87 tonnes, matching global mine supply ex-China which averages 44 tonnes per week. Add in Hong Kong, and the rest of the world has to sell down its gold holdings just to supply China’s private sector demand. This does not include unrecorded demand from the mega-rich buying directly in foreign markets. Furthermore, this week China announced it would liberate the market further, granting more dealers licences to import and export gold, leading to yet more potential demand.’