- Chinese demand for gold has rebounded a few weeks ahead of Lunar New Year festivities, but the peak season pickup remains far below previous years’ levels that propelled it to the top slot as the world’s biggest consumer of the precious metal.
The price of gold in China, which slipped to an uncharacteristic discount to international rates in November, has strengthened back into positive territory over the last couple of months. China’s premium has doubled to $4 per troy ounce from December.
But the premium is still nowhere near the $10 to $30 an ounce seen in previous years, say gold suppliers based in Hong Kong and Shanghai.
“So far, we are seeing a steady rise in demand,” says Wallace Ng, Shanghai-based head of precious metals trading at Gerald Metals. “But it is not strong enough to have a big impact on (international) prices.”
Still, the rise in Chinese demand is providing a floor at a time when the plunging price of crude oil has eroded the precious metal’s appeal as an anti-inflation hedge and a strengthening U.S. dollar has increased pressure on prices. China accounts for around a third of global demand.
The pickup in Chinese buying, combined with stronger demand due to worries over Greece and expectations of monetary easing in Europe, has pushed up the price of gold by 9% since it hit a four-and-half-year low in early November.
“Maybe we will see a more meaningful pick up in early February,” says Howie Lee, analyst with Singapore-based Phillip Futures. “In the short term, we will see a bit of support till February, but it may not last.”
Lunar New Year, the most important holiday in China during which deities and ancestors are honored and houses cleansed to usher in good fortune, is being celebrated on Feb. 19.
“Chinese physical demand is likely to support the gold price leading up to the Lunar New Year. However, if the price of gold continues to rise in renminbi terms it could soften demand,” said Ryan Case, Brisbane-based head of institutional sales for Bullion Capital, a gold exchange.
He said gold withdrawals from the Shanghai Gold Exchange for the week ending Dec. 19 were “very strong” at just under 61 tons, compared with around 50 tons for the week ended Dec. 12.
Shanghai in September launched trading in yuan-denominated gold futures and opened vast bullion vaults to boost its profile as a global trading hub.
Analysts say stronger Chinese demand in the past few weeks has helped negate pressures from a strengthening U.S. dollar, which usually has an inverse relationship with gold.
Gnanasekar Thiagarajan, Mumbai-based director of Commtrendz Research, said the market seemed to be ignoring the strong dollar as expectations of a rate cut by the European Central Bank are building up, which could lead to greater liquidity supporting gold.
A Nomura analyst said the price of gold in 2015 is expected to be largely influenced by a potential increase in interest rates by the U.S. Federal Reserve and a further rally in the dollar, as well as Asian demand for the precious metal.
China’s jewelry demand is likely to be $35 billion in 2015, compared with $40 billion in 2013, said Nomura analyst Yen Voo, adding that demand in 2014 had been estimated at around $32 billion.