UPDATE: Analysts: Physical Market Watching To See If Gold Price Stabilizes
By Debbie Carlson and Allen Sykora of Kitco News
Tuesday April 16, 2013 3:37 PM
(Kitco News) – Traders and analysts are reporting some pick-up in buying of physical gold after the dramatic price plunge of the last two trading days, but they also describe many potential buyers as perhaps holding back to see if prices stabilize before jumping in with both feet.
On the coin front, they report that there seems to be more interest in silver than gold at the moment.
Meanwhile, they say physical demand from the key gold-buying region of Asia is likely to pick up further, particularly considering the price drop came ahead of a key holiday period in Asia.
Spot gold dropped nearly $80 an ounce on Friday and then tumbled nearly another $130 on Monday. In particular, the market will keep tabs on any physical demand that emerges at lower prices in the world’s two largest gold-consuming nations, India and China.
Observers offered slightly mixed assessments so far, with some describing a pick-up but others feeling there is still a wait-and-see tendency in the market.
Afshin Nabavi, head of trading with MKS (Switzerland) SA, said his firm has seen some increase in physical demand at the lower prices.
“The market is a little bit cautious at the moment,” Nabavi said. “They don’t know whether it is going to make it or break it at the moment. But, we’ve seen very good demand starting Friday. Yesterday, it was OK and today it’s more aggressive.”
Rohit Savant, senior commodity analyst with CPM Group, said many potential buyers in India appear to be still holding off.
“What tends to happen is you see buyers waiting on the sidelines to see where prices stabilize,” he said. Then they step into the market once they sense prices will be holding up.
UBS on Monday offered the same perspective, although noting that there was a pick-up in offtake from India on Friday. “Given the pace and extent of the move down, physical buyers are likely to wait for prices to stabilize before jumping in,” the bank said.
Nevertheless, gold has become cheaper for Indians two ways over the last few days, Savant said. This should be a plus and is a turnabout from last year when demand in the country was hurt by a weaker Indian rupee that meant higher prices in the local currency.
Gold just suffered its biggest two-day fall ever in U.S. dollar terms. Additionally, the Indian rupee strengthened in recent sessions, Savant explained. The dollar hit a low of 54.008 rupees Tuesday that was its softest level since March 25. The bottom line, Savant said, is that the price of gold in India slipped from 27,611.71 rupees for 10 grams as of April 8 to 23,869.73 on Monday.
Meanwhile, May is a month when many weddings occur in India, where gold is often bought as a gift. Further, the Akshaya Tritiya festival on May 13 is a key holiday when many Indians buy gold, Savant explained. In fact, the holiday is so significant that when there was a strike by jewelry shops a year ago to protest higher taxes on gold, the strike was called off a day ahead of the holiday so consumers could buy, Savant said.
Jeff Nichols, managing director of American Precious Metals Advisors, said his contacts and clients in Asia are buying.
“Based on my conversations this morning with clients and friends, I can say most definitely physical demand is up in Hong Kong, Shanghai, Mumbai, with increasing bar premiums over loco London,” he said.
The interest is in investment bars, while retailers are seeing interest in small bars and jewelry, particularly in India. The jewelry interest is the high-carat low value-added jewelry, he said.
“It’s very much price-inspired,” Nichols said, noting that there has been some hesitancy to buy earlier this year because of higher taxes levied on gold.
Meanwhile, in the North American physical coin market, Peter Thomas vice president of INTL FCStone Precious Metals North America, a physical precious metals dealer, said he hasn’t seen much immediate reaction to the sell-off from his clients, except to confirm a position.
“I’m hoping to see (gold) prices fall a little more to get all the money that’s on the sidelines (to) come back in,” he said. “We do need prices to stabilize first.”
Sean Lusk, precious-metals analyst with Ironbeam, said that his contacts in the physical market also related only a modest pick-up so far. “They’re not seeing anything of size – (just) smaller gold and silver purchases,” he said.
Lusk and others reported that there appears to be more demand for silver, such as coins, than gold at the moment.
Silver demand continues to be very strong, as it has been all year, Thomas said. “I haven’t seen (silver) demand like this (in a long time).”
The U.S. Mint Web site shows that silver bullion coin sales are around 2.22 million ounces for the month to date. With roughly half of April still to go, this would seem to put them on a pace to exceed the 3.37 million from February and 3.36 million from March. Year-to-date sales of 16.44 million are well ahead of 11.66 million for the first four full months of 2012.
“There’s a lot of interest in silver Eagles, even as the price dropped,” Thomas said. And, he said, the premiums for Eagles are still strong, even as the price has fallen. As of late Monday, he said the premium for American silver Eagles was $4 over the spot price.
The demand for silver over gold speaks to the price difference, he said, noting that $1,400 buys a person one gold coin, but many more silver coins.
David Morgan, independent precious-metals analyst with Silver-Investor.com, also said he is aware of reports of strong demand for silver coins. “Physical demand for the smaller coins is strong. I’ve heard of two to three months to deliver product. The only product available is the 1,000-ounce bars,” Morgan said.
He said this reminds him of 2008 “all over again. You’re seeing it in the strong premiums for silver. Back then I bought three 1,000-ounce bars and eventually had them minted into coins.”
Morgan said the interest in silver over gold right now may come from those who see more utility for silver use in a worst-case scenario than gold. “Americans really don’t know this, but the word silver is money in many languages – argent. It’s much more easy to circulate,” he said.