Gold Up as Consumers Buy on 3-Month Low

During a drop in gold in New York to the lowest level in more than three months and in the weaker dollar climate, gold holdings in exchange traded funds have risen to a record. Additionally, the physical demand for gold bullion and gold coins, while more difficult to accurately track, has definitely seen a surge in sales following the Presidential election and continuing to this day.

Gold continued to steady on Wednesday following the slide to a three-month low in the previous session as it tracked stock markets higher. The spot price of gold reached $1,669.26 per troy ounce, little changed from the $1,669.54 per troy ounce the day before. U.S. gold futures for February delivery shed a mere $0.90 to $1,673.70 per troy ounce.

Amid the weaker-dollar atmosphere, physical demand from India has been above average this week with volumes in China also strong and buying out of Europe being notable, according to UBS AG which issued a report today. The U.S. Dollar Index, which measures the dollar against six counterparts, fell as much as 0.4 percent to the lowest level since October 18 amid speculation the negotiations over the U.S. fiscal cliff will reach some agreement, thereby reducing the current overwhelming demand for safer assets.

Andrey Kryuchenkov, an analyst with VTB Capital in London, said Indian and Chinese buying was active on the lows overnight. He added that after such heavy losses, activity remains subdued with some small-scale opportunistic buying on the lows.

Edel Tully, a London-based analyst at UBS, said in a report today that near-term gold sentiment is under pressure, but further out the view remains positive and in that sense current weakness ought to be considered a good buying opportunity.

Gold bullion is currently up 6.8 percent for the year, preparing for a twelfth annual gain and bolstered by actions taken by central banks around the world to bolster economies through monetary policy and fiscal stimulus. Holdings in gold-backed exchange-traded products increased to a record 2,631.43 metric tons yesterday, according to data tracked by Bloomberg. They have expanded by 12 percent in the current year.

Meanwhile, demand for physical gold and silver bullion to authorized distributors of the U.S. Mint is breaking multi-month and multi-year records. In November, the Mint moved 136,500 ounces of gold, followed by 45,500 ounces in December. The sales consisted mainly of one-ounce American Gold Eagle Coins. American Eagle Silver Coins have sold out in the 2012-date at the U.S. Mint as of Monday of this week, reaching 33,742,500 units sold. That is the third-highest sales level since the coin was introduced in 1987 with only 2010 and 2011 achieving higher totals.

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