Surging Gold Demand More Than Geopolitical

  • Posted Wednesday, July 02, 2014 at 08:47 PM

TANGIBLE INVESTMENTS - Los Angeles - by James O'Dell - Precious metals prices advanced across the board on Wednesday with Gold trading at a three month high of $1,330.10 an ounce, while Silver gained more than one percent to $21.27 an ounce while the dollar struggles. "The dollar weakness is helping Gold stay supported at current levels," said Mike Dragosits, of TD Securities. "Economic data will determine how dovish the Fed remains, and that will guide Gold."

Physical demand is currently supporting the yellow metal, as reflected in June Gold coin sales by the U.S. Mint, which totaled 64,500 ounces, up 34 percent from the 48,000 ounces sold in May. “Gold gains are all the more impressive given the generally pessimistic tone in the market in recent weeks. . .[Recent strength] may be perceived [as] safe-haven motivated buying related to geopolitical concerns in eastern Europe, Syria and Iraq and the possible impact on oil prices. But we suspect there is more to the Gold rally than geopolitical inspired buying,” said HSBC's James Steel.

Meanwhile, investor concern over higher real interest rates and a severe slowdown in China's GDP have been “overblown,” says Adrian Day, president of Adrian Day Asset Management. “Of course, interest rates will go up eventually, but…(Fed Chair Janet) Yellen has made clear that this will not be soon, even if inflation moves above the Fed’s target.”

“When the Fed does start to move rates up, we suspect they will lag inflation, and so there will be no meaningful increase in real rates for the foreseeable future. The market now sees that. As for China, imports have slowed from last year, but demand is still strong and growing, just at a slower rate than last year’s torrid pace," added Day.

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