Physical Demand from China Supports Gold Price

China Gold

(Reuters) – Gold price rose after a two-day decline on Thursday. The U.S. dollar edged lower and signs of physical demand picked up from China.

Profits were kept in check due to the relatively strong U.S. economic data, suggesting an end to the Federal Reserve’s stimulus and increasing investors’ speculation of an early tapering.

Activities in the markets were relatively thin, as the U.S. financial markets are shut on Thursday for the Thanksgiving holiday. Friday trades are also expected to remain relatively thin as many traders will try having a 4-days weekend.

Gold price in the spot market rose by 0.4% to reach $1,242 an ounce by 10:40 AM GMT. The prices fell to a 4 and a half month low at $1,227.34 on Monday this week.

U.S. gold futures for February delivery, Comex, rose by 0.3%, last quoted at $1,241.50 an ounce.

VTB Capital Andrey Kryuchenkov said that the main price drivers of the yellow metal remain the same, the US dollar and U.S. economic data.

Technically speaking, support stands at $1,220, and then the longer-term level would be $1,200, added Kryuchenkov.

The dollar index fell by 0.2% against a basket of currencies. The greenbacks retreated quickly after gaining from a relatively positive U.S. data in the previous session.

November Thomson Reuters/University of Michigan consumer confidence were better than a preliminary reading from 73.2 in October to 75.1 in November and the U.S. jobless claims unexpectedly fell last week by 10,000 to record 316,000. The Chicago PMI held up better than expected last month after the rise in October, dropping to 63 in November from 65.9 in October.

However, October durable goods report was a downside to an otherwise upbeat set of figures, somehow.

Investors fear that relatively improving economic data could prompt the Fed to cut back its $85 billion in monthly bond purchases, which was a bullion and gold friendly, increasing demand on the yellow metal as a hedge against expected hyper-inflation over the past few years.

Holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, reached the lowest since early 2009, to 843.21 tonnes. SPDR Gold Trust has seen net outflows of more than 450 tonnes in 2013, as investors preferred other rallying equities. The outflows from ETFs have been a major reason behind the drop in gold prices more than 25% in 2013.

However, China has seen a surge in demand this week due to lower gold prices. The country is expected to overtake India as the biggest consumer of the yellow metal this year.

Traded volumes of 99.99% purity gold on the Shanghai Gold Exchange (SGE) reached 18.3 tonnes on Thursday, their highest since Oct. 8, according to data compiled by Reuters.

Moreover, China’s net gold imports from Hong Kong hit their second highest on record in October, only outmatched by March import volumes,  as it bought more than 100 tonnes of gold for a sixth straight month to meet exceptional demand.