Gold Slips from 2-Week High, Chinese “Frenzy Won’t Continue” as Japan Fails to Shake Deflation

247Bull.com Editor: Macro investors continue to receive mixed and confusing messages. US equities are at record highs and housing is booming which implies that the economic recovery is gathering pace. (Some indicators are even pointing to 2007-style bubbles forming in the US economy. In the past 12 months for example, property prices in several major cities have risen by more than 20%: Phoenix +22.5%, San Francisco +22.2% and Las Vegas +20.6%). However, household incomes are falling at a near double-digit rates which implies serious downward pressures on the spending and thus economic growth. The disconnect between the real economy and the Fed’s bubble economy continues to grow. The question is, is the world’s largest economy heading for a double-dip recession or another blow-off asset bubble?

The price of gold slipped from a new 2-week high in London trade Friday morning, nearing the weekend 2.9% above last week’s finish, but losing more than 4.6% from the start of May.

Silver also edged lower, cutting its weekly gain to 0.3% and standing 7.6% lower for the month.

European stock markets meantime extended this week’s drop, but held onto better than 5% gains for May.

“The kind of frenzied gold buying in late April and early May won’t be repeated,” said Zhang Bingnan, secretary-general of the China Gold Association, overnight to Bloomberg.

Zhang’s comments came as market-development group the World Gold Council forecast record quarterly gold demand amongst Asian households for April to July.

Gold prices in India – the world’s heaviest gold-buying nation – this week slipped back to $4 over international benchmarks from $20 per ounce a fortnight ago, Reuters reports.

Gold gifts will be given to some 6.6 million Chinese brides in 2013, the China Gold Association says. But bargain-hunting to acquire that jewelry may have accounted for a large part of April’s surge in demand, sparked by a 15% drop in world gold prices, Zhang believes.

China’s gold imports through Hong Kong had already doubled to record monthly levels in March, however.

Here in London, gold dealing volumes through the largest bullion banks – centre of the world’s wholesale gold trade – rose 10% by weight in April to hit a 20-month high, trade body the London Bullion Market Association said in new data Thursday.

Silver volumes rose 25% to the highest level in 16 months. Trade in both metals rose much less sharply by value, however, growing 3.1% and 9.2% respectively.

“[Gold's] ability to hold above $1410 on a close basis removes some of the bearish pressure,” says the latest technical analysis from Scotia Mocatta bank.

“Support now seen at $1394 with resistance at $1425.”

“[Thursday's] renewed price slide on the Nikkei,” says Germany’s Commerzbank, “has made it clear once more that the latest boom on the equity markets is no one-way street.

“This evidently makes gold more attractive in the eyes of some market players, as is also evidenced by lower E.T.F. outflows.”

After rising for the first time in 3 weeks on Wednesday, gold bullion holdings were unchanged Thursday for the world’s largest exchange-traded gold trust fund, the SPDR (ticker: GLD).

Japan’s Nikkei stock index bounced Friday from its second slump in a week, but still ended the month 13% below mid-May’s new 5-year highs.

New data meantime showed Japan’s industrial production beating analyst forecasts with 1.7% annual growth in April.

Despite aggressive new money-creation by the Bank of Japan’s quantitative easing program, however, consumer prices continued to fall, down 0.4% last month from March for the sixth consecutive month of deflation.

“The short-term trend [in gold prices] seems to be higher for the moment,” says the latest note from brokers INTL FC Stone.

“[But] we think gold prices will be lower by year-end…considering that by then, the US Fed should give the markets more clarity as to when it is going to step back [from quantitative easing] if it hasn’t done so already.”

“Based on what the Fed is doing now,” said Anthony Scaramucci, partner at the $7.6 billion SkyBridge Capital asset managers, to CNBC yesterday, “giving us more transparency, I’m not a buyer of gold here.”

“Inflation is going to hit at some point. But it’s pretty far out based on macro econometric estimates.”

Adrian Ash | BullionVault

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