Gold “Trapped” in Range as Central Banks Buy Volume

August 17, 2012 – The spot price for gold bullion continued to tread just above $1,600 per troy ounce Thursday in London, well within trading ranges of recent weeks. The gold rise back above $1,600 per troy ounce is generally attributed to speculation and sentiment of quantitative easing in both the US and Europe.

Generally, and depending on which figures you use, gold has been trapped in a tight range for at least two and a half months.

Although central banks were buying gold in record quantities, data published from the World Gold Council Thursday indicates that global gold demand between April and June is down from the same period last year.

Silver prices continue to search for a firm footing above the $28 per troy ounce level. Stocks and commodities are generally flat in the US as Treasury bonds dropped.

On Wednesday, news that the US consumer inflation fell by more than was expected during the last month fueled expectations of stimulus, which brought the gold price back up.

Swiss precious metals group MKS was fairly dismissive at this time in a written note and Credit Suisse called it unlikely in the short term. Credit Suisse pointed out that the real economy is what matters and while it is not booming it is also not weak enough for intervention.

Global demand for gold dropped 7 percent during the second quarter of 2012 compared with the same period last year, according to the World Gold Council’s report published on Thursday.

Marcus Grubbs, the managing director of investment at the World Gold Council, pointed out that gold’s performance refers to a challenging economic environment. Further, the softness in India and China who represent cumulatively over 45 percent of the total second quarter jewelry and investment demand accounts for much of the slowing in global gold demand.

Indian demand has registered a 38 percent drop compared with the same period last year with demand at 181.3 tons. Demand from China dropped 7 percent year on year.

Even as stimulus expectations in Europe and the US continue to bring an opportunistic feel to the gold market, the drop in demand in Asian gold-buying countries is strongly influencing the gold market and contributing to the current range-bound gold price.

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